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Old 02-17-2013, 10:05 PM   #21
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I assumed that we were dealing with retirees, in which case dividends after being netted out against taxes and investment costs, would be spent.

I believe it would also be a very close call, after tax and investment expenses, even if remaining amounts were reinvested. During many of these years, capital gains taxes were high, and low cost tax managed vehicles did not exist. Also, most peoiple that had any money to invest held it taxable accounts in 1965, so the sheltering that is available today was not then.

Ha
Good point about taxes. From 1962 to 1982, the gain after inflation was minuscule, and most likely was negative after taxes on dividends, even if one did not spend any and reinvested it all.
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Old 02-17-2013, 10:17 PM   #22
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I assumed that we were dealing with retirees, in which case dividends after being netted out against taxes and investment costs, would be spent.

I believe it would also be a very close call, after tax and investment expenses, even if remaining amounts were reinvested. During many of these years, capital gains taxes were high, and low cost tax managed vehicles did not exist. Also, most peoiple that had any money to invest held it taxable accounts in 1965, so the sheltering that is available today was not then.
Seigel didn't say retirees, and he didn't say anything about tax rates. What tax rate would we assume: 50%? Some people do (and did), pay zero percent. And certainly dividends should be included, they are part of the total return. The quote from Siegel isn't "stock prices have never declined over a 20 year period."

Seigel's point is accurate: In the US there has not been a 20 year period when investors lost money with a broad investment in common stocks.
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Old 02-17-2013, 10:41 PM   #23
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Bullcrap. There is no other way to put it except bluntly. If you live in an inflation-free world, well, mazletov! The rest of us do not. Bonds take a beating when inflation and rates rise and it doesn't matter if you sell or hold (except at least the seller caps his pain). Anything else is nothing but a temporarily comforting illusion. Don't go there or drag others with you.
First, you have absolutely no reason to be so rude. That is inexcusable. Second, you are flat wrong. If you truly cannot see the difference between growth at even 1% and the loss of principle then the bullcrap is in your world.
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Old 02-18-2013, 04:49 AM   #24
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For some perspective on the dangers of bonds versus the dangers of stocks - stocks can drop even more in a given year:



from PRAGMATIC CAPITALISM Stock and Bond Drawdowns - Historical Perspective

There is really no place to hide. You just have to hope that most years at least some of your asset classes do well, and in years where most asset classes do poorly - well, you hope at least it doesn't last too long.
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Old 02-18-2013, 08:14 AM   #25
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I think the correct term for this is Asset Price Inflation.

Today's article:
There's a Feeling of Instability Bubbling Up - WSJ.com

Quote:
But it doesn't take much of a leap of imagination to see shadows of a very different decade: as in the early Noughties, the dominant dynamic in the markets today is a desperate search for yield that is fueling potential asset bubbles across global markets. Just as the U.S. Federal Reserve loosened monetary policy in the aftermath of the dotcom crash, central banks have been again flooding the world with easy money to try to pull the global economy out of its current malaise. And as in the past decade, there is evidence that all this liquidity is leading to asset-price inflation even as consumer-price inflation remains low, with concerns about bubbles in assets as varied as Swiss, Canadian and London real estate, emerging-market equities and the European corporate-credit market.
Think Tulips.
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Old 02-18-2013, 09:40 AM   #26
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I've always ploughed the middle furough. My allocation is 50/50 and I'll stick with it. My bond funds are intermediate duration (5 years) and I don't plan to sell if interest rates go up. I'll rebalance and wait for the higher interest rates to propagate through my holdings. I'm not a market timer in stocks or bonds.
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Old 02-18-2013, 10:59 AM   #27
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I've always ploughed the middle furough. My allocation is 50/50 and I'll stick with it. My bond funds are intermediate duration (5 years) and I don't plan to sell if interest rates go up. I'll rebalance and wait for the higher interest rates to propagate through my holdings. I'm not a market timer in stocks or bonds.
Rebalancing is plausible if Equities continue to rise. Or if one is still working they can add to their bond allocation if both go down . If interest rates go up 1%, then it will take you about 5 years to break even with a bond fund. What happens if they go up two or three percent or more over the next decade? Sounds like you are going to take a permanent hit on those funds. For this reason I like the laddering strategy using treasuries and agency bonds and CDs. It's the lesser of two evils. Once interest rates hit 5% or more, then bond funds will be a good option option IMO. Really, bond funds only make sense if you think interest rates are going to stay at present level or increase a max of 1% over the next decade.
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Old 02-18-2013, 11:10 AM   #28
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Seigel didn't say retirees, and he didn't say anything about tax rates. What tax rate would we assume: 50%? Some people do (and did), pay zero percent. And certainly dividends should be included, they are part of the total return. The quote from Siegel isn't "stock prices have never declined over a 20 year period."

Seigel's point is accurate: In the US there has not been a 20 year period when investors lost money with a broad investment in common stocks.
With the caveat that there is no practical significance to this statement, I guess you are correct. An interesting thing to me is that on these boards stocks are generally viewed as inflation fighters, and this was America's big fling with inflation, and valuations were not high by today's standards going into this period, and if one were paying no tax and having no expenses, which to me was likely a null set, then stocks barely eked out a gain over 20 years-nice that someone likes this, but I would not.

Ha
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Old 02-18-2013, 11:17 AM   #29
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There is really no place to hide. You just have to hope that most years at least some of your asset classes do well, and in years where most asset classes do poorly - well, you hope at least it doesn't last too long.
+1
  • You have your folks who vigorously warn us about stocks, here and elsewhere.
  • You have your folks who vigorously warn us about bonds, here and elsewhere.
  • You have your folks who vigorously warn us about cash, here and elsewhere.
  • ...gold, real estate, commodities, collectibles, derivatives, etc.
They're all right sooner or later (and that's when they are loudest), and they're all wrong sooner or later (and that's when they rationalize their POV or hide & wait). Asset allocation to a mix of asset classes has been proven itself superior to the market timing results most investors will actually achieve for the long term over, and over, and over...

YMMV
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Old 02-18-2013, 11:26 AM   #30
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+1
  • You have your folks who vigorously warn us about stocks, here and elsewhere.
  • You have your folks who vigorously warn us about bonds, here and elsewhere.
  • You have your folks who vigorously warn us about cash, here and elsewhere.
  • ...gold, real estate, commodities, collectibles, derivatives, etc.
They're all right sooner or later (and that's when they are loudest), and they're all wrong sooner or later (and that's when they hedge or hide & wait). Asset allocation to a mix of asset classes has been proven itself superior to the market timing results most investors will actually achieve for the long term over, and over, and over...

YMMV
+1+1+1+1
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Old 02-18-2013, 11:29 AM   #31
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(and that's when they rationalize their POV or hide & wait).
hahahaha... just a random thought - would that apply to asteroid strikes as well?
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Old 02-18-2013, 11:30 AM   #32
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Rebalancing is plausible if Equities continue to rise. Or if one is still working they can add to their bond allocation if both go down . If interest rates go up 1%, then it will take you about 5 years to break even with a bond fund. What happens if they go up two or three percent or more over the next decade? Sounds like you are going to take a permanent hit on those funds. For this reason I like the laddering strategy using treasuries and agency bonds and CDs. It's the lesser of two evils. Once interest rates hit 5% or more, then bond funds will be a good option option IMO. Really, bond funds only make sense if you think interest rates are going to stay at present level or increase a max of 1% over the next decade.
Lots of "if"s in there, which is why I'm 50/50. I don't know where the markets will go. I do as much as I can to reduce the impact of them on my retirement; I have no debt, own my home and a rental property, have a small annuity, a small pension and will get 2 x SS checks (one UK the other UK) and have ways to reduce my expenses in hard time. I don't know what the next 10 years will bring so I'll stay 50/50 with intermediate duration bonds. Vanguard sees it much as I see it.

https://personal.vanguard.com/us/ins...tExc2-01222013
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Old 02-18-2013, 11:44 AM   #33
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First, you have absolutely no reason to be so rude. That is inexcusable. Second, you are flat wrong. If you truly cannot see the difference between growth at even 1% and the loss of principle then the bullcrap is in your world.

I think that you are looking at things in the light that a lot of people look at things... as an individual with rose colored glasses... which if you deal with finance you can not do....

Let me give an example... you buy a house... the houses all around you go down in value... but you hang on to yours... 20 years later your house has returned to the value it had when you bought... did you lose 'principal' at any time during that 20 years Your answer would be no... you would say 'I did not sell my house, so I never lost anything'... my answer would be yes.... why? Because the value of your house dropped during the time you held it... IF you had sold, you would have lost principal... it does not matter if you did not sell it, you lost principal.... you decided not to sell, which is perfectly fine, but that just means you did not realize your loss...

People say this all the time with stock.... 'yes, it has gone down in price but I have not lost anything because I have not sold it'.... that is basically what you are saying.... because you have not sold your bond you have not lost... but you really have a loss.... now, a bond is different in that your lost principal will come back over time as long as whoever is paying it does not go BK....
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Old 02-18-2013, 11:57 AM   #34
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I think that you are looking at things in the light that a lot of people look at things... as an individual with rose colored glasses... which if you deal with finance you can not do.....
TP - first, believe me I do not have rose colored glasses. Not at all. And I did portfolio management for a living for a number of years. And, because it was a public entity (public money) it was 100% fixed income! From short term C.P. (A1/P1 only), to agencies, treasurites, corporate bonds (BBB or better), we did repos, reverse repos, BA's CD's - oh my ... I have forgotten all the produce we bought... Callable, Noncallable.... step adjustabels.

The primary model we used was the SLY model - Safety, Liquidity, Yield. FIrst, do not lose the public's money. Then, can you get the money liquid if a need comes up, LASTLY, yield. Very conservative.

I am not discounting the effects of inflation, just that "lost opportunity" is significantly differtent than lost principle.
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Old 02-18-2013, 11:58 AM   #35
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Originally Posted by nun

Lots of "if"s in there, which is why I'm 50/50. I don't know where the markets will go. I do as much as I can to reduce the impact of them on my retirement; I have no debt, own my home and a rental property, have a small annuity, a small pension and will get 2 x SS checks (one UK the other UK) and have ways to reduce my expenses in hard time. I don't know what the next 10 years will bring so I'll stay 50/50 with intermediate duration bonds. Vanguard sees it much as I see it.

https://personal.vanguard.com/us/ins...tExc2-01222013
It would be nice if bond funds existed in 1950 thru 1980 so we could see how they performed coming off zero interest rates. All the data, including calculators like firecalc, use 5 or ten year treasuries (individual bonds) in calculating returns. That is why I put my return expectations in myself when using firecalc. 7 percent for stocks which is what Bogle and Bernstein and Buffet predict. And 2% for bonds because that is what the ten year is paying.
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Old 02-18-2013, 12:25 PM   #36
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.....I am not discounting the effects of inflation, just that "lost opportunity" is significantly differtent than lost principle.
To begin with, it's principal, not principle.

But the key question is, is a loss of buying power bad as well? I would suggest that a loss of buying power is bad and a loss of principal is even worse.

The thing is, if you are managing a fixed income portfolio and have a loss of principal it is really noticeable - a loss of buying power (by earning less than inflation) is less noticeable but still bad.
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Old 02-18-2013, 12:33 PM   #37
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"lost opportunity" is significantly differtent than lost principle.
Yes, lost opportunity is "different" than lost principal. But, in FIRE portfolios, lost opportunity can be just as problematic over time.
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Old 02-18-2013, 12:38 PM   #38
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+1
[*]You have your folks who vigorously warn us about stocks, here and elsewhere.[*]You have your folks who vigorously warn us about bonds, here and elsewhere.[*]You have your folks who vigorously warn us about cash, here and elsewhere.[*]...gold, real estate, commodities, collectibles, derivatives, etc.


YMMV
I have one word to say on all stocks versus all bonds: Diversification

How many times do people have to rediscover the wheel?
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Old 02-18-2013, 12:39 PM   #39
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It's a false distinction when applied in this way. But Ol' Jeremy is also flogging untruth about his darling stocks.

Look at this chart of inflation adjusted returns on S&P 500. Clearly there were 20 year periods that showed a loss- page down a bit and look at 1965-1985.

Ha

S&P 500: Total and Inflation-Adjusted Historical Returns
1965-85 was a lousy 20-year period, and even worse if you throw out 1983-85.

But it looks to me that while the level of the index was lower in 1985 than in 1965 when adjusted for inflation, it eked out a gain, albeit a small one, in "total return" (with dividends reinvested). Or am I reading it wrong?
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Old 02-18-2013, 12:51 PM   #40
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1965-85 was a lousy 20-year period, and even worse if you throw out 1983-85.

But it looks to me that while the level of the index was lower in 1985 than in 1965 when adjusted for inflation, it eked out a gain, albeit a small one, in "total return" (with dividends reinvested). Or am I reading it wrong?
No, you are correct. I was trying to allow for expenses and perhaps taxes on dividends. It seems that even with 1%/year for expenses, which would have been fairly cheap even for institutions at that time, and no tax on dividends, there would have been a real loss.

From the way I see it, the rule is is very narrowly defined in order to show a tiny gain, which IMO would have been a loss in the real world.

Ha
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