A different investment "mind-set". What do you think?

[ERD50]

Quote:

Originally Posted by lowflyer ...considering that we will have a few other sources of future income, I can't see any way that our portfolio will do anything but grow, even if I pull a constant 4+% out for spending.

That 'future income' statement is important to the discussion. Is that COLA'd income? If not, and if it makes up a significant portion of the cash flow you will need to live on, that makes the overall inflation issue even more important. A fixed (non-cola) income will look like peanuts in 30 or 40 years. That places more inflation pressure on your portfolio.

And, how do you get >7.3% w/o taking some risk? A glance at the Vanguard funds show bond in the range of 5 to 7%, and the highest id their 'junk bond' fund?

Plug your numbers into firecalc and you should see what inflation will do to you. It would appear to me that ignoring inflation is more dangerous than the risk of a downturn in a balanced equity portfolio.

ERD50

[haha]

Quote:

Originally Posted by Eagle43 I stay in equities because of inflation. Seeing your loot lose its value will drive you back to... well w*rk. Why I remember buying gasoline at 29 cents a gallon. Movies were ... well I shall stop, but you get the idea. It's steadily rising, even if Uncle Sam says it's not. Keep up or boil.

This quote is typical of many in this thread, and in fact represents an attitude so commonly held that it is part of the investing landscape.

What if it were not true? Obviously there is inflation, but maybe that in itself doesn't make the case that stocks as a class protect against inflation. Here is a quote from an Elroy Dimson article linked in another recent post.

"Irrational exuberance has run its course. The first three years of the 21st century brought one of the worst bear markets in history, with equity markets around the world falling some 40 percent in real terms. Yet, despite fortunes lost on Wall Street, many investors remain irrationally optimistic about future long-run equity returns: The pervasive belief is that over the long haul, equities are sure to keep up with inflation. Unlike short-lived bursts of exuberance that may burst like a bubble, the excessive optimism of investors has been long term and systematic. In this article, we use the global database from our recent book, Triumph of the Optimists (Dimson, Marsh, and Staunton 2002), to confront the optimism of investors with the reality of history."

I recall being very surprised when investors shook off the bear market mentioned above, and held steady. Many early posts on this board mention ideas like holding the course , keeping the faith, etc. These are new behavioral traits to be shown by such a large cohort of people. In the past, any large downturn sent a huge majority of individual investors scurrying for cover.

My brother and I spent quite a bit of time speculating on what was different. Our number one suspect was that the boomer generation is different. For one thing, it is the first generation where a college education is widespread to ubiquitous among ordinary people. For another, it is the first generation to be subjected to widespread and deliberate attitude shaping, from the biggies of the 60s and 70s to more recent attempts at thought control in the educational, corporate, and media environments.

Also, it is a huge cohort, and therefore has been very powerful at persuading other groups toward its points of view.

Much of what we think we have learned we have only been persuaded of. Many of what we assume are facts are only attitudes.

A lot will depend on how robust these group mind shifts turn out to be!

Ha

As far as keeping up with inflation. The years between 1966-1982 saw equities gain almost nothing, as a lot point out. I think they did OK just keeping up with inflation, which was pretty rampant during those years.

That said I would not invest my whole pile in equities, just a resonable 50-60%. If stocks do not keep up up with inflation, I'm not sure any other investments are going to do that well either. Stocks usually represent the health of the economy and the country.

I don't spend a lot of time worrying about it.

[wabmester]

Quote:

Originally Posted by HaHa My brother and I spent quite a bit of time speculating on what was different. Our number one suspect was that the boomer generation is different. For one thing, it is the first generation where a college education is widespread to ubiquitous among ordinary people. For another, it is the first generation to be subjected to widespread and deliberate attitude shaping, from the biggies of the 60s and 70s to more recent attempts at thought control in the educational, corporate, and media environments.

Huh? Are you saying that schools and mainstream media are pushing buy-and-hold?

Day trading was the hot topic of the 90's, and it's still pretty popular. This board probably represents about 10% of the retail market with an indexing and buy-and-hold mindset.

I'd guess that MPT as an influence on *institutional* investors has had a much bigger effect on volatility.

And then there are IRAs, discount brokers, and the internet all within the last 20 years or so.

[haha]

Quote:

Originally Posted by Cut-Throat As far as keeping up with inflation. The years between 1966-1982 saw equities gain almost nothing, as a lot point out. I think they did OK just keeping up with inflation, which was pretty rampant during those years.

Yes; it appears that the 10 years from 1965 through 1974 were worst yielding an annual average loss of 4% real.

From Dimson: "The lowest annualized 10-year real return ever experienced from U.S. equities was –4.0 percent, which occurred during 1965–1974; the bottom one-tenth of all 10-year returns fall in the range of –4.0 percent to –0.9 percent, and the bottom one-fourth fall in the range of –4.0 to +2.8 percent."

These figures include dividends, but are gross of expenses, taxes, etc.

To me, this means that if someone were to take 4% annual inflation adjusted withdrawals for 10 years, 10% of the time he could be down as much as 30% to 80% real, after the ten year period. Also, in as many as 25% of the runs, he would fail or almost fail to beat TIPS. Figuring for even low expenses the results would be worse.

And this data is from the US, in the 20th century-possibly not representative of all the possibilities.

Quote:

I don't spend a lot of time worrying about it.

I understand. I am not promoting worry; just calling attention to data and events/ speculations that I find interesting.

Quote:

Originally Posted by wab Huh? Are you saying that schools and mainstream media are pushing buy-and-hold?

No.

Ha

[wstu32]

as NORDS taught me....or helped me..

what works for you and you sleep well at night is what works for u!