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But the fact of the matter is that most people don't get to select their potential "time frame" in the market. They invest in the market when they have the money to do so. And if they're investing in index funds, then their results depend pretty much on luck of what the market does.
It's not like they have the choice of going back in time and saying "that's the time period I choose to invest in". Nor is there any guarantee of what the future holds. Sure, those with a very long time period of investing have the odds in their favor, but not everyone has several decades for their investing.
So, it seems that we are in agreement that investing in index funds is no guarantee of great results. Nor is the practice of putting ALL your available money in equities a guarantee of great results. Cash can definitely play a useful role in a person's investment strategy, and at times can even produce better results than investing 100% in equities.
Even the worst of time over an accumulation period were pretty respectable but it takes time ..the longer the better ..
So you need to have money to invest and some may have the choice as to , do i channel extra money to accelerate the mortgage or do I invest more in earlier .
Nothing in life is ever 100% nor will it apply to everyone… but odds are good that money that has at least 20 years or more to grow will do well ..we may have had one or two long term periods stocks didn’t do as expected but it is rare.
Which is why if you look at the success rate of 100% equities in retirement it is pretty much on par with 50/50.. you had I think one extra failure periods out of 121 rolling 30 year periods
Had you been fully invested in the S&P 500 index for a full 10 years from 01/01/2000 to 01/01/2010, then here is what your return would have been:
"Stock market returns between 2000 and 2010
If you invested $100 in the S&P 500 at the beginning of 2000, you would have about $109.78 at the beginning of 2010, assuming you reinvested all dividends. This is a return on investment of 9.78%, or 0.85% per year."
So your fully invested return of 0.85% per year in this index fund for 10 years would have returned less than if you had put your money in a money market account earning about 2% or better for the same time period.
I'm simply pointing out that investing ALL your investment funds in a stock index is no guarantee of superior performance. In fact, there are decades in which it doesn't even keep up with lowly money market rates.
Thank you for stating the obvious. I never suggested that it was a guarantee. Are you aware of anyone giving guarantees on significant returns? If you are, send them my way. I am always open to exploring ideas for a better way to invest my money. Investing in the S&P in 2000 gets you 3 bad years right off the bat and a very bad year in 2008. Some of us are going to be bigger winners and some bigger losers based on the timing of our returns.
With inflation in the 6% range and interest rates below 1% you are losing 5% on money in cash. So resist the temptation and stay invested.
True - but you have to recognize the roll of cash in your portfolio, not as a stand-alone investment unrelated to the rest of your portfolio. There is no uncertainty with cash while there is substantial uncertainty in all risky assets, including equities. Having a portfolio consisting of a combination of risky assets and risk-less cash/US T-Bills is typically optimal for most investors, both retail & institutional.
It would be very unusual for someone to have a risk tolerance such that the optimal portfolio contains zero cash/T-Bills.
Last edited by moguldreamer; 12-23-2021 at 07:37 PM..
...And if they're investing in index funds, then their results depend pretty much on luck of what the market does.
Not luck, really. The price level of equities is a function of the stream of expected future earnings, discounted for risk. So what effects future earnings? Business models, technical innovation, marketing strategies, channel strategies, tactical execution, etc etc. What goes into the risk for which future earnings are discounted? Tons of things.
Luck isn't a big component of the general price level of equities.
I'm that "advance the mortgage payment" guy..... it worked for me but only because I have a small house and not living in CA, NY, NJ or some of the ridiculously priced states. Maybe if I lived elsewhere I would have done things differently. But I can tell you - it's nice not having a mortgage to pay. No matter what else happens, the bank can never take my house away. The government can, in theory, but that's a different story.
I'm that guy too but hedging my bets by investing as well. I'm not putting all my extra funds into paying off the house as fast as I could, I also invest in my tsp, Roth and brokerage at the same time with a pension in the wings. I'm ahead of my projections on where I would want to be so I feel confident things will work out. I figure if I can be mortgage free by 45 while also have the 1m+ investable assets I should be in good shape.
Looking at both the bond-subject and the cash-subject and the ordinary investor is reaching a situation where they don't know what to do.
But particular selection of ETF's or Mutual Funds is not an answer and therefor there is no answer for the ordinary investor. There is no advisor.
Bonds don't help at low interest rates and cash doesn't help during financing of fiscal stimulus.
Well, I favor ticker LQDH over TIPS because TIPS are priced below zero rates. TIPS can pay an inflation premium but could also otherwise decline with rising interest rates. The dollar could rise on FRB bank-rate increases but could decline on stimulus financing. The true fundamental is whatever just actually occurs.
And so ticker LQDH might not be a safe place because there are both longer-term interest rates to consider and short-term interest rates to consider. Ticker WIW might hold because it is both leveraged and hedged but has the same problem as ticker LQDH. Floating rate bonds could rise in value with higher interest rates but those bonds have the risk of lower credit ratings. Six-month high-yield corporate bonds are likely to be hurt by bank-rate increases
All the ordinary investor can really do is invest in what they are interested-in or hedge what they are worried-about. These are two very clear feelings.
One relatively tame inflation hedge is a sell of the 2-year Treasury future or a buy of a 2-year Treasury rate future.
A hedge to avoid capital-gain taxes, instead of selling positions, is good point. But an explicit offsetting position should not be carried across the year-end unless it is a put-option. There are some very surprising IRS rules.
There is one bank which offers 0.85 % for your savings.
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