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Rethinking Stocks for the Long Haul
Old 02-03-2011, 05:54 PM   #1
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Rethinking Stocks for the Long Haul

Rethinking Stocks for the Long Haul - BusinessWeek

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the combination of recent experience and a substantial body of finance research makes a convincing case that there's no safety in owning stocks for 10, 15, 20, 30 years—quite the opposite. Far too many investors may be taking on more risk than they know with their retirement nest egg in target-date funds or comparable portfolios put together by a DIY generation of savers. The risk in stocks is that they may stay down for a long time, wiping out a generation of savers who could be long dead before the market starts climbing again.
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Old 02-03-2011, 06:03 PM   #2
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Now let's do the same with bonds.
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Old 02-03-2011, 06:04 PM   #3
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did you even read what the article had to say ?

In a nutshell many retirees are betting the farm on an equity premium which might just not be there over the time frame that they need it. Absent an equity premium many people will be in trouble.
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Old 02-03-2011, 06:08 PM   #4
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Are they saying it's the death of equities?

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Old 02-03-2011, 06:28 PM   #5
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did you even read what the article had to say ?

In a nutshell many retirees are betting the farm on an equity premium which might just not be there over the time frame that they need it. Absent an equity premium many people will be in trouble.
I think I read it. Want to bet the farm on bonds from Egypt, Zimbabwe, the US or California?
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Old 02-03-2011, 06:31 PM   #6
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OK - I posted it for some (modestly) intelligent discourse.

Evidently that isn't going to happen.
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Old 02-03-2011, 06:46 PM   #7
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Well, who started it?

Actually, you posted a link. Where is the rest?
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Old 02-03-2011, 06:48 PM   #8
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I wish they keep publishing these articles. Then, when the market tanks, I can buy into some more cheap stocks, nice nice.
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Old 02-03-2011, 06:50 PM   #9
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Who you calling modest?

Lots of history on this board about the timing of articles on the death of equities, by the way--I meant it as a legitimate comment:

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Old 02-03-2011, 06:54 PM   #10
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The point is, we don't know. The best we can do, unless we think we know something the "experts" don't, is to fashion a portfolio that historically works for our risk tolerances and time horizons.
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Old 02-03-2011, 06:56 PM   #11
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I did read the article and found it somewhat lacking. The fact that the market (or my particular slice of it) can go down sharply is hardly new. So what's the alternative? All fixed income? I am certain that strategy won't have a prayer of maintaining a 4% inflation adjusted payout. With a slug of equities, at least I have a chance to hedge against inflation.
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Old 02-03-2011, 07:03 PM   #12
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OK - I posted it for some (modestly) intelligent discourse.

Evidently that isn't going to happen.
If you wanted that to happen; you could have directed it in that direction by posting your thoughts.

Since you didn't do that; you left it to others to influence the direction of the discussion.
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Old 02-03-2011, 07:23 PM   #13
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There's nothing new in the article, he gives no alternatives for better investing, and doesn't mention that diversified investing with rebalancing can help solve potential low returns in the equity market. Just another paycheck article, IMO.
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Old 02-03-2011, 07:26 PM   #14
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I have mixed views about the article but on the whole found it unconvincing.

I am much more comfortable buying equities for the longer term than I am buying bonds - given (i) that the earnings yield (inverse of PE) is higher than the yield on longer term bonds (YMMV - depending on which equities and which bonds you are talking about) and (ii) I belive that corporate earnings as a whole should grow over time (in both nominal and real terms), in my rather simplistic view of the investing universe, equities are actually safer preservers of wealth in the longer term than bonds. Given that I expect we will continue to see at least modest inflation in the forseeable future, this would hold true even if corporate earnings only grew in nominal (not real) terms.

I appreciate that in the shorter term (or longer) there will be occasions in which equities do very badly - but that does not destroy the longer term case for owning equities. Instead, it leads to the important conclusion that one shouldn't hold all equities. At the very least a few years worth of expenses in the form of cash/near cash should be kept to avoid being put in the position of having to sell assets at depressed prices to fund living expenses. In addition, market volatility creates situations in which equities are both over valued and undervalued (relative to historical norms) - holding a mix of asset classes and being prepared to sell when things look materially over priced and buy when they look materially underpriced (or rebalance to a fixed asset allocation if you prefer) provides opportunities to benefit from that volatility.

Then again, I'm something of an equity cultist.....
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Old 02-03-2011, 07:26 PM   #15
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I have zero interest in arguing investment policies with members here. But things like Zvi Bodie's reasoning are pretty powerful.

A book with a title that is misleading to some-Triumph of the Optimists, by Elroy Dimson, makes a similar point. The US has had blessed path, which of course may or may not persist. I see no indication that we are better governed (meaning more intelligently governed) than many other countries, so I really don't know why we should be able to keep skating across thin ice
forever.

No sense making challenges like ?But are bonds better?- what really counts is that one has his eyes open. Early retirement is a leap of faith. Best approach is to become a soldier or cop, and if people try to stop funding your pension, just shoot them.

Ha
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Old 02-03-2011, 07:31 PM   #16
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Best approach is to become a soldier or cop, and if people try to stop funding your pension [trample your grass], just shoot them.

Ha
Fixed it for ya...

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Old 02-03-2011, 07:45 PM   #17
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Fixed it for ya...

Boy, you really like this one! I am beginning to feel like your set-up guy.

Ha
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Old 02-03-2011, 07:47 PM   #18
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Old 02-03-2011, 08:27 PM   #19
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OK - I posted it for some (modestly) intelligent discourse.

Evidently that isn't going to happen.
Maybe not. I believe the answer may lie here
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Old 02-03-2011, 08:38 PM   #20
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In a nutshell many retirees are betting the farm on an equity premium which might just not be there over the time frame that they need it. Absent an equity premium many people will be in trouble.
The old rule of thumb used to be that you should subtract your age from 100 - and that's the percentage of your portfolio that you should keep in stocks. I've not heard much of this old rule around here. Most seem to be much more willing to take on risk and some much less.
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