Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
Well, yes… ultimately the only statistics that matter, are one’s own personal statistics.
I have been an amateur investor for nearly a quarter-century. A rough calculation shows that of my current portfolio balance, some 50% is my contributions, and 50% is gains. That means, very roughly, a cumulative rate of return of around 100%, which works out to just under 3% CAGR. This is actually quite horrible, for a more or less consistent 80% stock, 20% bond allocation, with no panic-selling.
How did it happen? Simple. During the boom years of the 90s, I had very little invested. 25% back-to-back annual returns didn’t matter much cumulatively. When the 2008-2009 collapse hit, I had considerably more invested. And in the ensuing recovery, my results lagged because I had so much invested in international stocks. The freshest money, at my peak earnings, came recently – which means that it hasn’t had much time to benefit from compounding, but it adds to the column of my contributions. 2013 was a great year; I gained more in 2013 alone, than I did in the entire 20th century. But look at international stocks and small-caps. They’re just now retracing where they were at their then-peak, 2+ years ago.
In sum, there can be spectacular disparity, even for a stodgy buy-and-hold investor, between the indices and individual performance – NOT because of panicking market-timing or self-defeating investor psychology, but just because of sequence of capital accumulation. How to improve odds of better CAGR going forward? Simple! Just stop adding money to the portfolio.
sequence of accumulation of capital is a huge factor .
i am a seasoned investor and been through it all but i got to tell you , watching the price of a luxury car evaporate in one trading session is stressful . whether it come back tomorrow or next year or not the numbers can be mind blowing later on in life .
International stocks are one of my pet peeves. Several years ago, a couple of my funds started doing poorly versus the markets. I investigated and found that the fund managers had loaded up on Internationals in the hopes of beating the returns on the US stock market. Even after that did not work they kept it up. I had to sell off those funds and switch to different funds.
Personally I have a hard time coming up with any foreign country I would want to invest in. Certainly not any country in south America. It seems there is always a dictator, political unrest and certainly endless corruption and inefficiency. Japan? Absolutely not. The Japanese economy has been suffering for decades with no end in sight. China? No, China has already captured a high percentage of the world's manufacturing and the growth has to slow. Italy, Spain, Greece? No way. India? Don't know; don't care. I have a hard enough time gauging what is happening here. I don't need more uncertainty about foreign investments.
You can't rationalize with these investments. ETF for Mexico has been going up despite Trump's rhetorics. But the last year investment in emerging market and Europe has outpaced the US stock market. I tend to watch my investments and move my money there even for short term.
sequence of accumulation of capital is a huge factor .
i am a seasoned investor and been through it all but i got to tell you , watching the price of a luxury car evaporate in one trading session is stressful . whether it come back tomorrow or next year or not the numbers can be mind blowing later on in life .
We have just had several months of great returns but somehow you manage to consider some event when you lost money short term. It must be hard living in your skin.
You can't rationalize with these investments. ETF for Mexico has been going up despite Trump's rhetorics. But the last year investment in emerging market and Europe has outpaced the US stock market. I tend to watch my investments and move my money there even for short term.
That is what the my fund managers thought and it cost me a lot of money even though I did not know or agree to that sort of allocation.
Originally Posted by mathjak107
sequence of accumulation of capital is a huge factor .
i am a seasoned investor and been through it all but i got to tell you , watching the price of a luxury car evaporate in one trading session is stressful . whether it come back tomorrow or next year or not the numbers can be mind blowing later on in life .
We have just had several months of great returns but somehow you manage to consider some event when you lost money short term. It must be hard living in your skin.
Quote:
Originally Posted by jrkliny
We have just had several months of great returns but somehow you manage to consider some event when you lost money short term. It must be hard living in your skin.
I think you missed the point of the post. It was an opportunity to sneak in a comment about how much money he has.
I think you missed the point of the post. It was an opportunity to sneak in a comment about how much money he has.
Tough crowd here...
I interpret his comment quite simply to mean, that after a lifetime of assiduous earning/saving/investing, it would take a very long stretch of earnings at one's current salary, to recoup a mere single day's potential losses in the market.
Example: Joe Sixpack retires from a factory assembly-line job, earning $10/hour. That's roughly $20K/year. But Joe has accumulated a portfolio of $500K. After some jarring political event - like Brexit - the market drops 2% in one day. Joe believes that he's immortal, or at least that his family is immortal, so he's 100% in stocks. 2% = $10K = 6 months of Joe's labor. Summary: one bad day in the market, and Joe loses a half-year of his gross annual salary... which might be several years of Joe's after-tax savings.
Actually I disagree. Most non-professionals like us have no clue. I personally tell people if they have choices to pick a target date fund based upon their timeline. Most of these are well managed and make their clients happy in the long run.
Researching is good but if a person doesn't understand what he is looking at it will do no good.
The old tried and true method of determining equity level is to take and subtract your age from 100 and that is your best equity level.
Hence looking at some target fund allocations. Open Vanguard target funds and see what they have invested in. You might be surprised. DW and I have recently opened up a brokerage account and deposited in three payments over a 3 month period 10k each into 2 funds. One a target date of 2025 and the other an income fund and we have increased over that period up 1k. I think that is a pretty nice return where that money was sitting in the bank earning maybe 1%.
Oh and OP thank you for a very engaging thread. This will be a good one for a while.
I don't need much of a cushion because two pensions and SS with no mortgage takes care of living expenses. That said, my credit union offers 4 year, 2.5% APY certificates. I bought 5 of those at $10k apiece as an emergency fund and as a windfall fund if the economy presents me with a dime on the dollar purchase opportunity. The rest of my money gets spread around in assets, some of which have done very well, some have done OK, and some haven't done much. It's a big advantage to be able to purchase stocks during a crash rather than sell them.
BTW, you can dodge broker fees by investing in DRIPs. Usually you can't buy over $10k in stocks in a calendar year, but you just send them a check and they sell you the stocks at current market value. When you sell, it works in reverse. The company just sends you a check. Dividends get reinvested at current market with no additional fees. If you are going to be in equities, it's a pretty good way to go.
We have just had several months of great returns but somehow you manage to consider some event when you lost money short term. It must be hard living in your skin.
Quote:
Originally Posted by ohio_peasant
Tough crowd here...
I interpret his comment quite simply to mean, that after a lifetime of assiduous earning/saving/investing, it would take a very long stretch of earnings at one's current salary, to recoup a mere single day's potential losses in the market.
Example: Joe Sixpack retires from a factory assembly-line job, earning $10/hour. That's roughly $20K/year. But Joe has accumulated a portfolio of $500K. After some jarring political event - like Brexit - the market drops 2% in one day. Joe believes that he's immortal, or at least that his family is immortal, so he's 100% in stocks. 2% = $10K = 6 months of Joe's labor. Summary: one bad day in the market, and Joe loses a half-year of his gross annual salary... which might be several years of Joe's after-tax savings.
I don't need much of a cushion because two pensions and SS with no mortgage takes care of living expenses. That said, my credit union offers 4 year, 2.5% APY certificates. I bought 5 of those at $10k apiece as an emergency fund and as a windfall fund if the economy presents me with a dime on the dollar purchase opportunity. The rest of my money gets spread around in assets, some of which have done very well, some have done OK, and some haven't done much. It's a big advantage to be able to purchase stocks during a crash rather than sell them.
BTW, you can dodge broker fees by investing in DRIPs. Usually you can't buy over $10k in stocks in a calendar year, but you just send them a check and they sell you the stocks at current market value. When you sell, it works in reverse. The company just sends you a check. Dividends get reinvested at current market with no additional fees. If you are going to be in equities, it's a pretty good way to go.
Just so that you know. Vanguard doesn't charge broker fees. Every cent of the 30k we deposited in the account is used in our investment. Both funds I am in are relatively conservative. I know the market has been relatively up over the last 3 months but I have had very decent results. About 3 to 4 times what you make in the credit union.
yep , so the cycle becomes an important part of the outcome . no one repealed the business cycle , we only delayed it a bit .
so it is the business cycle when spending down that levels things to a mid point and all you end up doing is taking a wilder ride up and back down in to a steeper valley and eventually arrive at the same mid point area other models did with less of a nose bleed ride .
at the end of the cycle study after study shows us the greater effect of sequence risk levels out those greater gains more , making it likely not worth the risk of going 75-100% equities in the first place vs 45-60% .
also , having higher equity positions become less of a risk if you catch a big up lift early on in retirement . the first 5 years outcome are very crucial . so i think anyone telling someone who has not really had a healthy up lift in their retirement cycle yet they should have a very high equity position this late in a cycle i think is giving very poor advice.
there is a huge difference in outcome and risk depending on what valuations are when you enter retirement .
you can certainly take a lot more risk at market bottoms than market tops if you are a new retiree and have not experienced your first decent market upswing creating that cushion so you do not end up like trader with a string of big losses early on by spending in to a downturn when the cycle shifts . .
there is a very good reason that 40-60% equities is pretty much the retirement standard for so many retiree''s who depend on their portfolio's for 3 or 4% initial draws and who don't think the sky is falling .
the data shows that is the sweet spot for risk vs reward once the market cycle is complete , unless you are a great market timer . which i already know from experience i am not .
Market cycles are run by greed. You can invest a million in stocks and take a $200k profit if they go up 20%. You can also buy on margin and use your megabuck to make $2 mil on the same money and the same market move. It's euphemistically referred to as "leverage," but what it is is gambling. If you guess right, you make $2 mil. If you guess wrong, you have to meet a margin call, which means either throwing good money after bad or taking a bath. At best you can lose your megabuck. At worst you lose all the assets you encumbered to back the margin purchase. Selling short is betting the market will drop by selling shares you don't own. You can cover your back with puts and calls, but it's really expert trader time. You need a direct line and a high speed computer that can buy and sell millions of shares a day. That's how amateur day traders get skinned.
That said, sometimes you can see it coming. The 2007 crash was heralded by rampant speculation, in crude oil, real estate and stocks. I frankly didn't see the banking crisis coming, but when gasoline passed $4 a gallon I bailed to cash. Enron was still fresh in my memory, and if 9/11 hadn't happened I would have taken a real bath in 2001. After living through 1980-1982 I knew real estate was a shaky investment unless you had years to recover.
There is always a trigger event for a crash. Recognizing that trigger event when it happens is the problem.
Please register to post and access all features of our very popular forum. It is free and quick. Over $68,000 in prizes has already been given out to active posters on our forum. Additional giveaways are planned.
Detailed information about all U.S. cities, counties, and zip codes on our site: City-data.com.
Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
