manager

Comments:

• Indeed, the period of "declining interest rates that had boosted returns for 40 years" is most likely over. This is due to that fact that, in the mid 1960s, fiscal spending actions conducted by the Johnson administration ( "Guns and Butter" era ) set in motion the creation of a highly unique "interest rate mountain" ( lasting from 1970 - mid 2010s, with rates peaking in 1982). However, absent this interest rate anomaly period, over 150 years, the average range of interest rates ( short + long bond rates ) has been between 2.5 - 3.5%. https://imgur.com/a/baoJ5Oq . An overshoot of the "range" occurred in July 2020 ( with yields falling below 1%, the ultimate rate "cap" ). And with recent inflation, yields have risen back above the range by a moderate amount. However, the sea change is the advent of rates settling back into the historic long term range ( a rate range that is highly desirable for servicing the interest on the National debt ), with the cap appreciation contribution towards bonds' total return disappearing. Starting around 2018, returns and principal growth produced by bonds have started to reflect this, as witnessed by a review of returns produced by the popular Vanguard Total Bond Index https://www.portfoliovisualizer.com/backtest-portfolio?s=y&sl=2GWazLjlait9Vf9OmobYCJ and a review of the steadily declining annual coupon / dividend yields paid over decades https://imgur.com/a/TAlkyCi . And these coupon payments aren't adjusted for inflation. However, there is a bright spot. Research shows that a 50/50 portfolio representative of the Large and Small cap value stock universes / indexes has sustained between a "3.5% - 7%" inflation adj annual withdrawal rate ( "sale of shares", dividends reinvested ), accompanied by terminal portfolio growth, over seventy one rolling 20 year periods ( and even rolling 30 year periods ) since 1931 ( Charts 2 and 3 https://tinyurl.com/yckmev96 ) - these results produced over a variety of interest rate regimes. Naturally, an investor can own the small and large value stock universes through investment in low expense ETFs. Therefore, an investor need not rely on exposure to the uncertain future of bond returns, and stick with income that is generated from earnings and profits of US companies.

  Post: Sea Change?

  Link to comment from October 29, 2023

• Within the retirement planning landscape, one feature that has been fraught with confusion has been the lack of identification and standardization of equity portfolios that have produced "maximal" returns and growth over the accumulation stage. This wealth accumulation maximization is important, in that, in the retirement or spending stage, large and unforeseen expenses and economic conditions may arise. Yet, if the saver/investor has made the most optimal investment choices and has produced the maximal portfolio growth, then the regret of having produced a less than optimal wealth accumulation - one that may make the challenge of managing the expenses more difficult - will be reduced. Academic research shows that the equity asset classes / returns factors that have produced the highest returns over the past 40 / 90+ years have been growth/momentum and small & large value stocks * https://tinyurl.com/2wn5cvm6 . Yet, common financial planning literature and advice may, for example, suggest a portfolio invested in a "Total "World" Stock Market index" or "Total Stock Market index". However, when comparing the returns and terminal $ accumulation produced by the value/growth/momentum portfolio to the Total World Market index portfolio, the terminal growth produced has been substantial, with the value/growth/momentum portfolio producing an average of double the growth ( rolling 20 year periods since 1986 https://imgur.com/a/GOMZEmW ) - and this with the SAME amount of "risk". Imagine, for example, an investor entering retirement with $500k versus $1M ! It may be too late for some boomer era investors to change the composition of their portfolios if they've resided in portfolios that have produced less than satisfactory wealth accumulation. However, this feature may be quite applicable to younger investors. * this portfolio can be constructed with a few low expense ETFs through popular and well respected fund product vendors

  Post: Retirement at Risk

  Link to comment from July 17, 2023

• A decent empirical measure that can be used to forecast forward stock returns has been the advent of negative double-digit years produced by the S&P (500) index. Since 1931, after the advent of negative double-digit years produced by the S&P 500 ( most recent 2022 ), forward 5 & 20 year stock returns, especially "value" stocks, were substantial Table 1 https://tinyurl.com/4x3wn7sd . And returns were decent even after having to endure an "additional" year (multi-year submergences) of double-digit decline ( ie. 1931, 1974, & 2002 ) Table 2. This measure doesn't attempt to tell us if a market is overvalued ( heck, we're not going to sell "at a top" anyway ), yet provides a perspective on the futility of panic selling after the market has already declined, and the resulting gains that an investor will miss if they are fearful and impatient.

  Post: Beyond Valuations

  Link to comment from May 4, 2023

• A simple way of producing confidence towards investing in the "small" cap stock universe, and one that promotes the "holding" of the portfolio for a long(er) period of time, is to review the annual returns produced by the "benchmark" (S&P500). Since 1931, when a greater than -10% decline year was produced by the S&P index, forward 5 (and 20) year stock returns, especially for a split portfolio of small and large "value" stocks, have been decent. https://imgur.com/a/YI4Hlfh The "value stock" portfolio is used because, based on academia, value stocks have produced the highest "excess returns" above the risk free rate, and over the longest historical sample, of all equity based asset classes ( Fama, Seigel, Ellis ) https://imgur.com/a/0ARsQhs And we can see that since 1931, over rolling 20 year periods, the portfolio produced a minimum of triple digit total returns https://imgur.com/a/o8WjKQC So when looking at the myriad of "effects" that are cited in the media, zero in on data that promotes a long holding period, and employ asset classes that have produced a robust track record of returns.

  Post: January Junkie

  Link to comment from February 24, 2023

• It's reassuring to know that a portfolio of small & large value has been able to sustain an annual inflation adjusted income withdrawal of between 3.5 - 7%, accompanied by terminal portfolio growth, over seventy-two rolling 20 year periods since 1931 up until present ( this using a simple conditions based methodology https://tinyurl.com/yckmev96 ). And in the income stage, an investor shouldn't worry about their portfolio having to "beat a benchmark" - the portfolio just needs to do it's job of providing an income stream.

  Post: Helpful in Theory

  Link to comment from February 12, 2023

• Research shows that a portfolio of "value" stocks has been able to sustain an annual, inflation adjusted income withdrawal of between 3.5 - 7%, accompanied by terminal portfolio growth, over rolling 20 year periods since 1931. https://tinyurl.com/yckmev96 One can use low expense "value" ETFs, such as those from Vanguard, Avantis, Fidelity, etc., towards achieving this end.

  Post: The Long Game

  Link to comment from February 4, 2023

• One sentence sums up 90% of success in investing (with academic references): “Hold a passive, well diversified, and low expense core portfolio of small & large value stocks through ETFs (Fama, Ellis, Malkiel) for 20+ year periods (Seigel, Ellis), and avoid paying annual AUM fees (Sharpe)". 20 year rolling total returns of a 50/50 small & large value portfolio since 1931 : https://imgur.com/a/QN1tVOA

  Post: Trading High

  Link to comment from January 27, 2023

• An optimistic way to view investing in the stock market is to think in term of 20+ year periods. Come Dec 31st, the market will have achieved eighty-five consecutive rolling 20 year periods resulting in positive returns starting 1919 - these over the roaring 20s, Depressions, WWII, inflationary / deflationary periods, financial and banking crisis, Fed rate increase and decrease campaigns, etc. And there is always some sort of "narrative" in play over the short term. Sorting 20 year returns by Presidential election years, starting from 3rd Presidential years, "value" stocks have done the best, especially during bouts of moderate / high inflation https://imgur.com/a/FoE40mB

  Post: Happy Talk

  Link to comment from November 22, 2022

• If one trusts the academic evidence ( Fama "three factor model ) and long run ability of the small cap value universe in producing decent returns, if not excess returns above benchmark, then it can be a satisfactory core asset class within both accumulation stage and de-cumulation stage investors portfolios. If an investor is in their "income" or retirement stage, and wants to create and manage a flexible income stream in a simple fashion, research shows that a 50/50 portfolio representative of the Large and Small cap value universes / indexes has sustained between a "3.5% - 7%" inflation adj annual withdrawal rate ( "sale of shares", dividends reinvested ), accompanied by terminal portfolio growth, over seventy one rolling 20 year periods ( and even rolling 30 year periods ) since 1931 ( Charts 2 and 3 https://tinyurl.com/yckmev96 ). An investor can own the value stock universe through investment in low expense ETFs. Further, the aggregate cap appreciation / dividend reinvestment produced by the stocks within the "funds" delivers the income stream described above, rather than a focus on individual company specific dividend payouts. And this repeating for over 90 years as shown in the study.

  Post: Good Enough

  Link to comment from November 18, 2022

• Sounds like a lot of trying to time the bond market. And the bond market has been as volatile as the stock market. An income alternative can be one based on academia and a long historical track record. Research shows that a 50/50 portfolio representative of the Large and Small cap value universes / indexes has sustained between a "3.5% - 7%" inflation adj annual withdrawal rate ( "sale of shares", dividends reinvested ), accompanied by terminal portfolio growth, over seventy one rolling 20 year periods ( and even rolling 30 year periods ) since 1931 ( Charts 2 and 3 https://tinyurl.com/yckmev96 ). An investor can own the small and large value stock universe through investment in low expense ETFs.

  Post: Worst Year Ever

  Link to comment from November 13, 2022