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Consumer staples safer than total market?
Old 04-15-2012, 08:54 PM   #1
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Consumer staples safer than total market?

I am 60 and more interested in capital preservation than gains and it seems that consumer staples are much safer in a down market than the total market or S&P 500.In 2008 the market went down 37% and cons staples only 16% with similar results in other bad years.I realize the gains would be less in a good market.The bogleheads really dismissed the idea with their logic being 5000 stocks are safer than 100 plus.I am still not convinced and would like some thoughts if anyone has any on the subject.I was thinking of going 70% bonds and 30% stocks.The stock portion maybe 10-15% total stock 5% intl and 10-15 % cons staples.Any thoughts?Thanks.
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Old 04-16-2012, 06:02 AM   #2
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Hi Hoops, welcome to the forum. I agree with the Bogleheads, a broad index is less risky than one industry sector.
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Old 04-16-2012, 10:08 AM   #3
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I'd rather stay with total market long term. I'm guessing you've looked at something like this Fidelity Investments Research: Sectors
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Old 04-16-2012, 10:40 AM   #4
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Something like a long/short fund that is intended to avoid losses might also be suitable for a small portion of a consrvative portfolio. Though usually they have higher expenses than we might like.

Balanced funds might be good as well. I like OAKBX and there's always Wellesley.
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Old 04-16-2012, 12:47 PM   #5
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Another vote for Wellesley. I am 62, DW 64, her IRA is mostly in Wellesley and it has outperformed the portfolio I manage for myself, although I have much more international in mine. It has a good AA about 65% fixed 35% stocks, close to the 70% you are looking for. And mostly I am worried about bonds going forward. I am trusting, hoping, fingers crossed, that the bond managers in Wellesley will do a better job than holding a total bond fund. I know holding bonds long enough and reinvesting dividends makes for a recovery over some time but I do not have that much recovery time as we are drawing down the IRAs now.
Other big question for the OP is how much space do you have in tax free.deferred for bonds? If you have all taxable portfolio are you reinvesting dividends or withdrawing them for expenses?
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Old 04-16-2012, 01:37 PM   #6
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Thanks to all....Yakers I have really looked at Wellesley and wondered the exact same thing about the bond portion.The problem I have is the same a lot of you have expressed.It seems like a horrible time to invest in bonds.I do have about 20% now in Vang short term corp but I have about 40% of my portfolio in a money mkt. at Vanguard.I am also very concerned about stocks right now so what is one to do?That is why I was considering cons staples but no one seems to agree with me.It just seems so obvious to me that stocks of companies that people need to buy from no matter how bad the market is that also pay a good dividend are safer than the total market.I still have not seen any evidence that my assertion is wrong other than people saying 5000 stocks are safer than 100 plus stocks.I understand if you go over a period of 50 years the total mkt will return more than cons staples but that does not mean they are safer in a down market.Maybe I am just nuts
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Old 04-16-2012, 06:17 PM   #7
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Quote:
Originally Posted by hoops
the total mkt will return more than cons staples but that does not mean they are safer in a down market.
On the one hand, I agree completely with the others here and my own investments show that- - I am invested in Total Stock Market, Total Bond Market, Wellesley, an international index fund, and a government bond fund.

On the other hand, I chose to pay off my mortgage. Owning my house in full lowers my monthly expenses substantially and that is a big help in a down market. So, in a sense I am following your philosophy by paying off my house.

I also keep a cash buffer equal to 2-3 years' expenses. In a down market, I can supplement my dividends with my cash buffer. In a down market, I do not anticipate ever having to touch my investment principal.
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Old 04-16-2012, 06:39 PM   #8
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Quote:
Originally Posted by hoops View Post
I still have not seen any evidence that my assertion is wrong other than people saying 5000 stocks are safer than 100 plus stocks.I understand if you go over a period of 50 years the total mkt will return more than cons staples but that does not mean they are safer in a down market.Maybe I am just nuts
The wonderful thing about the stock market is that you get to make up your own mind, and act accordingly. You don't make money by convincing others of your position, but by being right.

Ha
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Old 04-16-2012, 07:11 PM   #9
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W2r and Ha....Thanks for the replies.Food for thought for me.Ha just to let you know I am not trying to convince others about my view,I was looking for someone to show me why my view is so wrong other than telling me about the total market being more diversified.All I know in my limited little view of things is when I look at bad years in the market like 2008 it is clear how the consumer staples stocks perform vs the 5000 stocks in the total mkt.In the last 10 years in what has been considered a lost decade for stocks they also outperformed the total market by a good margin from what I can see.Is there a scenario when the stock market is getting hit hard where consumer staples would not be safer than the total market?? My main concern is protecting my assets from a major hit but I know that I need some stocks.
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Old 04-16-2012, 09:40 PM   #10
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Not everyone here goes for total stock market.

In the accumulation phase, I have a taste for what is called 'slice-and-dice', where the market is divided into large growth, small growth, large value, small value, etc. DFA funds pioneered this idea I think. A retired Canadian math prof with the nom-de-plume of gummy examined it in detail. An archive of his works is here now: Pietro, that's me Wow, was he prolific.

I also have a taste for dividend producing stocks. I think I can use dividends better than the company can. In fact, I do not trust them with 'my' dividends.

Have I done better than Wellesley? I might look into that sometime.

Regardless of my choices, there is nothing wrong with total stock market plus total bond market. Check out the Margarita Portfolio of Scott Burns.
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Old 04-16-2012, 09:49 PM   #11
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That is why I was considering cons staples but no one seems to agree with me.I
Well I have about 10% of my stock allocation in VDC[Vanguard Consumer Staple ETF].

VDC Vanguard Consumer Staples ETF, etf, quote, price , shares - Morningstar

This ETF was started in 2004. It has a beta of .53. It matched the S&P500 performance in 2005&2006 & beat the index handily from 2007 to 2011. This year however while it has a positive return it about 1/2 of the S&P 500.

VDC has returns similar to Fidelity Consumer Staples select fund[fdfax]. The Fidelity fund has a 15 year track record. It has beaten the S&P500 with less volatility.

I won't recommend over 50% bonds as you may have 30 years of retirement ahead of you. But if consumer staples let you sleep at night. There are certainly worse choices.
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Old 04-17-2012, 09:11 AM   #12
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Perceived stability comes at a price. In a reasonably efficient market where risk and return are linked, you should expect to pay more for a dollar of "stable" earnings than for a dollar of "lumpy" feast-or-famine earnings (assuming similar growth projections).
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Old 04-17-2012, 10:18 AM   #13
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You could diversify a bit with dividend stocks/funds, which are also thought to be defensive in nature. Probably some overlap with staples, but different. Living off dividend stocks is accepted by many as OK and diversified enough. I think I would feel pretty comfortable with something like that combo, after you look at what history says about those two groups.
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