Something about this article does not add up...

[urn2bfree]

https://www.investing.com/analysis/the-“big-lie”-of-market-indexes-200198970

The drift is that people over-estimate how well a buy and hold approach can work. Still, this strikes me as overly pessimistic. Is this author ignoring dividend re-investment? And/or the power of continued investments made during down years which end up dollar cost averaging and providing better overall returns than a simple flat time horizon calculation from start to finish?

FIRE geniuses, what do you think?

 

[W2R]

https://www.investing.com/analysis/the-“big-lie”-of-market-indexes-200198970

The drift is that people over-estimate how well a buy and hold approach can work. Still, this strikes me as overly pessimistic. Is this author ignoring dividend re-investment? And/or the power of continued investments made during down years which end up dollar cost averaging and providing better overall returns than a simple flat time horizon calculation from start to finish?

FIRE geniuses, what do you think?

Well, if you consider the opposite of "buy and hold" to be "buy and tinker", I know that the latter just doesn't work very well for me. I'm not willing to try that again, or to donate a chunk of my yield to have some investment dude try it for me, either.

I agree that this article is overly pessimistic. If I was interested in get rich quick schemes, I'd be more interested but I'm just a retiree interested in living the good life and funding that with my earnings.

 

[sengsational]

Not that I spent very much time on it, but it was obvious to me he's either incompetent or disingenuous.

I really only looked at the chart with the inflation adjusted S&P and the 8% compounded. Were people in the 90's "promised" 8% above inflation? I don't think I was. The blue part of the chart goes to $800K by 2016, but if you assume a more reasonable 6% equities growth and a 2.5% inflation rate, the blue part of the chart only goes to $250K, and the inflation adjusted S&P looks like it's in the $330K range.

I do think that there are some very long stretches where inflation adjusted equities are going to be down. I also think that it's wrong to espouse the notion that it's a smooth ride up. But there are honest ways to explain those ideas.

 

[Red Badger]

Interesting? No.

Gobbledygook? Yup.

This guy is writing investing "advice" and likely a gilded slave manacled to his paycheck. Over-complicating investing is my firs red light - always.

I'll take my counsel from folks like Messrs Bogle, Buffet, and Munger.

Simple can be hard. For some folks, it is hard not to squander every dime of every check. For others, it is hard not to time the market. Simple can take discipline. Weight loss comes to mind.

 

[Fedup]

We are genius now?

 

[OldShooter]

I didn't spend much time either. This is a site that makes money by convincing people that they can win by active investing. Passive investors don't generate page views or click on get-rich-quick advertisements. So obviously he has to discourage passive approaches.

It does seem that his ghost stories apply to any portfolio, not just a passively managed one. But the rhetoric is consistent with the objective of the Chicken Little crowd that feeds off active investors: spread FUD everywhere and constantly.

Now back to real life. I'll take my annual look at my passive portfolio in about six months. It has about a 90% probability of beating any actively-managed alternatives. What "beat" means in dollars or percentages is not knowable, and what the market will do is not knowable, but history suggests that our result will be adequate for our needs.

 

[Independent]

I don't think that anyone here thought that index funds promise a smooth 8% or 6% compounded real return.

That seems to be the strawman this guy is beating.

He is correct that a real investor can't match an index due to expenses. But, it looks to me like Vanguard's "500 Index" VFIAX has an expense ratio of 0.04%. I can handle that.

 

[pb4uski]

These writers are idiots.

Assuming that an individual was 35 at the peak of “Dot.com” bubble, they are now 51 years of age and are no closer to their goals than they were 16 years ago. Assuming they will retire at 65, this leaves precious little time to reach their retirement goals.

$10k invested in VTSAX on 7/5/2001 would be worth $29,665 today. That is an average annual return, after expenses, of 7.03%. It would take $13,772 in May 2017 to have the same buying power as $10k in May 2001 based on CPI... and annual inflation rate of 2.02%.

VTSAX Vanguard Total Stock Market Index Fund Admiral Shares Fund VTSAX chart

https://www.bls.gov/data/inflation_calculator.htm

CPI Inflation Calculator
$ 10,000.00
in May 2000
has the same buying power as
$13,772.26
in May 2017​

So VTSAX generated a 5.01% average annual real return over the last 16 years.

While it excludes taxes, in many cases these balances are in tax-deferred 401ks/IRAs or tax-free Roths... and your tax burden is often lower in retirement.

In addition, many of us here are proof positive that buy and hold investing works... we a retired and the moron who wrote that article is still working.

 

[canuck5]

I've been a buy and hold investor for 35+ years and only until recently have made some "adjustments" to my portfolio, as I hope to (no will!) pull the trigger at the end of this year.

I've seen multiple crashes, multiple wars, currency devaluations, good politics, bad politics, high interest rates, low interest rates, irrational exuberance, Y2K and I wished someone would've slapped me on the back of the head, when I got scared, and tell me to put more money in the market. Not pulling money out, was the next smartest thing.

The article is ridiculous.

 

[Chuckanut]

$10k invested in VTSAX on 7/5/2001 would be worth $29,665 today. That is an average annual return, after expenses, of 7.03%. It would take $13,772 in May 2017 to have the same buying power as $10k in May 2001 based on CPI... and annual inflation rate of 2.02%.

Stop confusing us with facts.

Obviously, you continue to be a dangerous radical!

 

[GravitySucks]

The lost decade did happen, but did anyone invest everything on the day the market hit its top? Most of us averaged in over the years and had the nice years of the 90s to grow first.
I have a friend who thinks much like that. Although the money went in from the mid 80s to 2001 he counts all his loss from the market top, not from where the value was when he put it in. And yes these were real losses as he sold in 01 and bought some annuity product.
The article cherry picks bad ranges. Most of us put in slow and steady and hopefully are taking out slower and steady. I need to go re-read the Kitce article thread telling me I'm better off than I think to clear the palate.

 

[pb4uski]

Stop confusing us with facts.

Obviously, you continue to be a dangerous radical!

I prefer to think of it as "old school" rather than radical, but facts seem to be an increasingly rare commodity these days.

 

[AginMS]

The lost decade did happen, but did anyone invest everything on the day the market hit its top? Most of us averaged in over the years and had the nice years of the 90s to grow first.

So maybe they didn't invest everything on the day the market hit its top, but what if they retired when it did and stopped investing? In a way isn't that the same thing?

I guess I'd really like to hear from folks from the Class of 2000-2001 to see how they "weathered the storm". Did their net worth increase or decrease during this time; if it decreased, what was the lowest it dropped to during that time; what was their AA during this period; if their net worth decreased year over year, how did they stay the course and how has their net worth done since 2013 when the market finally "broke even" again. Maybe a separate thread is needed to get a good response though.

 

[OldShooter]

... I guess I'd really like to hear from folks from the Class of 2000-2001 to see how they "weathered the storm". Did their net worth increase or decrease during this time ...

Well, I pulled the trigger in 2003 and my wife in 2005. We weathered the storm the same way we have done since October 19.1987, by doing nothing. One advantage we had was that we had bought a bunch of TIPS in around 2003; 2% of 2026. Those guys rocketed up during the storm, hitting around 150% of our cost basis. So that was a nice portfolio leveler. The result was that our net worth took a small hit but it was not worrisome because we had seen storms before. ... and we will again.

For us, the TIPS are inflation insurance against another 1975-1980, since that is really the only thing that could ruin our retirement. I don't really think of them as an investment; more like fire insurance. But in hindsight it looks like brilliant asset allocation.

 

[Fedup]

Well, I pulled the trigger in 2003 and my wife in 2005. We weathered the storm the same way we have done since October 19.1987, by doing nothing. One advantage we had was that we had bought a bunch of TIPS in around 2003; 2% of 2026. Those guys rocketed up during the storm, hitting around 150% of our cost basis. So that was a nice portfolio leveler. The result was that our net worth took a small hit but it was not worrisome because we had seen storms before. ... and we will again.

For us, the TIPS are inflation insurance against another 1975-1980, since that is really the only thing that could ruin our retirement. I don't really think of them as an investment; more like fire insurance. But in hindsight it looks like brilliant asset allocation.

Do you buy them directly from the government or do you buy QTIP ETF?

 

[OldShooter]

Do you buy them directly from the government or do you buy QTIP ETF?

We just bought them through Schwab's bond department. I see no reason to pay a fund manager to do something that is so trivially easy to do on my own. The diversification argument for buying a fund just doesn't make any sense when buying govvies of any sort, either, since there is negligible credit risk.

 

[Fedup]

We just bought them through Schwab's bond department. I see no reason to pay a fund manager to do something that is so trivially easy to do on my own. The diversification argument for buying a fund just doesn't make any sense when buying govvies of any sort, either, since there is negligible credit risk.

Thank You. I'm going to look up if Vanguard provides the same thing.