The market isn't as bad as it seems?

[FUEGO]

I'm working on changing up my asset allocation a bit. In the process I was looking at Vanguard's list of all stock mutual funds. I found something surprising. There were ZERO funds that had average annual growth of 0% or less over the last 5 years ending 9/30/2008. There was only one fund with annual growth of 0% or less over the last 10 years ending 9/30/2008. That fund was the US Growth Fund (VWUSX) at -3.33% growth per year over the last 10 yr period.

As much doom and gloom as we hear today, investors in this thing for the long haul aren't doing so bad after all. Sure, if you just started investing one year ago, you're looking at some ugly red numbers today. I'm sure if you cherry-pick a starting date (after September 11, 2001??), you could show how negative your results would have been.

But for folks with 10-20-30+ year time horizons, equities haven't been too bad to be in. Just pondering things and trying to keep it all in perspective...

 

[dex]

Thanks - in times like this it is important to keep the long view.

 

[Dawg52]

Give it another day or two.

 

[Orchidflower]

And how long will it take me to get my 30+% loss back? 20-30 years? Another reason to keep living, I guess, as I'm not going to let the economy win this one if I can help it...sigh. (And you guys laughed when I said the Royal Bank of Scotland said we'd be down to 1050 by September, so they were a tad off and it's early October but we are at 1056 in the S&P right now.)
I'd like to say "hang in there," but, for many of us, we are in so darn deep that we have no other choice much right now, eh?

 

[harley]

I don't think people were laughing at the 1050, they were laughing at the Bank of Scotland being the predictor. Hell, I've been predicting a Dow 8000 for over 5 years. But if I turn out to be right I doubt I'll be hailed as a genius (except by myself ).

 

[ejman]

Well, financially I'm back to where I was in October of 2005. But wait in October 2005 I'd already been ER'd almost three years and everything looked wonderful back then. It's funny the same spot looked great back then and looks awful right now...

 

[audreyh1]

Good point ejman!

Unfortunately, I'm almost down to Jan 2005 levels. I don't remember whether I was feeling great then, but I did buy an RV, so I must not have been too nervous!

Audrey

 

[FIREd]

When looking at the value of our investments, we are back to where we were in March 2007 (as of tonight). We are getting awfully close to a 6-digit $$$ loss (my first!) from the market top almost 1 year ago.

 

[freebird5825]

Sure, if you just started investing one year ago, you're looking at some ugly red numbers today...
But for folks with 10-20-30+ year time horizons, equities haven't been too bad to be in. Just pondering things and trying to keep it all in perspective...

dh2b just got into several indexed VG MFs on June 30 of this year. he is a hurting unit right now. it's a good thing i'm a good cook!
i tell him to ignore the short term mania and focus on the 10 yr return (his minimum retirement horizon). he tries...and he vows he will not panic! his AA is 60/40 so it's not too horrible for him yet.
thanks for the positive post!

 

[Dawg52]

When looking at the value of our investments, we are back to where we were in March 2007 (as of tonight). We are getting awfully close to a 6-digit $$$ loss (my first!) from the market top almost 1 year ago.

I've unfortunately exceeded that milestone quite sometime ago. Wish I had a portfolio large enough to say I've passed the 7 digit mark.

 

[cute fuzzy bunny]

And how long will it take me to get my 30+% loss back?

Well if it was 1987 or 1998, it took a couple of months to recover a 30% loss.

The rise came from out of nowhere and was fast and furious.

 

[ziggy29]

I've unfortunately exceeded that milestone quite sometime ago. Wish I had a portfolio large enough to say I've passed the 7 digit mark.

If I had enough money that I could sustain a 7-digit loss in the market, I'd not have much invested at all. I could probably live comfortably on 1-2% of it each year and only invest enough to try to keep up with inflation.

 

[Hamlet]

In the stock market, these things have a history of turning around real sharply. We could be in for a horrible extended bear market, or it could turn on a dime.

Probably the most comparable years in the stock market in recent history-

1973 S&P500 -14.66%
1974 S&P500 -26.47%

Things looked pretty horrible in 1974. Let's look at the returns that followed--

1975 S&P500 +37.2%
1976 S&P500 +23.84%

I think all this talk about the second Great Depression is bunk.

The Fed is reacting in the exact opposite direction that the government did in the 30s. We are not going to have massive deflation, because the Fed is going to print as much money as needed to keep things going.

That will have very negative effects down the road (see the early 80s), but we'll survive them.

And how long will it take me to get my 30+% loss back? 20-30 years? Another reason to keep living, I guess, as I'm not going to let the economy win this one if I can help it...sigh. (And you guys laughed when I said the Royal Bank of Scotland said we'd be down to 1050 by September, so they were a tad off and it's early October but we are at 1056 in the S&P right now.)
I'd like to say "hang in there," but, for many of us, we are in so darn deep that we have no other choice much right now, eh?

 

[retire@40]

What this boils down to is whether or not you believe the USA itself will go bankrupt.

If that is possible, then we are all in a world of hurt.

Otherwise, this will be a bear market followed by a bull market. The weak and fearful will lose and the strong and courageous will win.

 

[CompoundInterestFan]

What this boils down to is whether or not you believe the USA itself will go bankrupt.

Yep. And if that happens, then retirement, early or otherwise, will be the least of our concerns.

 

[FUEGO]

In the stock market, these things have a history of turning around real sharply. We could be in for a horrible extended bear market, or it could turn on a dime.

Probably the most comparable years in the stock market in recent history-

1973 S&P500 -14.66%
1974 S&P500 -26.47%

Things looked pretty horrible in 1974. Let's look at the returns that followed--

1975 S&P500 +37.2%
1976 S&P500 +23.84%

And recently, the 2000-2002 bear market was ugly, but then look at what followed in the five year period of 2003 through 2007 (again for the S&P 500):

2000: -9.06%
2001: -12.02%
2002: -22.15%

then,

2003: +28.5%
2004: +10.74%
2005: +4.77%
2006: +15.64%
2007: +5.39%

Maybe 2008 is going to be a really bad year. 2009 might also. Maybe 2010. Or 2009 and 2010 might be more like 1975-1976 and 2003-2004. No one knows which scenario will play out though.

 

[al_bundy]

as i'm writing this the SP500 is around 1030. it first hit this back in 1998, so if you had started investing in 1998 and you are a long term buy and hold person than you are where you started plus any dividends that are most likely less than the rate of inflation.

can you say deflation?

 

[ziggy29]

as i'm writing this the SP500 is around 1030. it first hit this back in 1998, so if you had started investing in 1998 and you are a long term buy and hold person than you are where you started plus any dividends that are most likely less than the rate of inflation.

can you say deflation?

Yep. Whatever other kooky things he says, in a fairly calm and lucid interview recently, Cramer has been saying the same thing. The huge destruction of wealth being caused by massive deleveraging is leading to serious deflationary pressures not seen since the 1930s.

And I think he's right.

If you think inflation is bad for the economy, try deflation. About the only people who might benefit from deflation are people who are independently wealthy and have everything in cash. Anyone who needs a job is screwed. Anyone who tries to build wealth is screwed.

Anyway, Cramer's thesis was that rates need to be cut more and the Fed needs to print more money to bring the short end of yield curve down so much that the huge spreads in the yield curve will entice banks into lending again by profiting from the spreads. I suppose that would suck for savers to get almost nothing in interest, but the bet is that it would be better than continuing deflation.

Not sure how much I buy all of that, but I do agree that in the short term, inflation is the least of our concerns and potential for devastating deflation among the greatest of them.

 

[haha]

J.M. Keynes was perhaps the most influential economist of the 20th Centrury, and also a very successful investor and commodity speculator. During th e30s he wrote many letters to members of King's College, Cambridge and other associates explaining his operations at that time.

Early on he favored what he called "credit cycle investiing", which is very similar to what we usually refer to as market timing. By '34 or so he had abandoned that idea as fruitless and often counterproductive. That does not mean that he was a buy and hold nihilist- he strongly believed that equities should be actively chosen on value, and bought and sold mostly on this criterion. My understanding of this is tht it was similar to what ew might call intermediate term position trading.

Right now I believe we are seeing a huge panic toward liquidity, and those who are fortunate enough to have it are demanding a lot of stock for it. IMO, they will be rewarded.

Nothing is certain, but my guess is that today's sellers will be big time losers, and not over any 5 or 10 year time frame.

I credit the arguments given here for deflation and depression, but I can't see it happening. Too many growth pressures operating in todays world that were not present in the 30s.

There is a bargain price for almost everything, and I'd say that much of our basic industry, as well as similar throughout the world is today on sale. Many Oil and gas and service comapnies of the highest quality are selling today for less than when I bought them in the early part of this decade, but the commodity prices are much higher. Some of these I sold earlier this year at prices 3x what they are fetching today.

I freely admit that I jumped too soon this time, but to accomplish things one has to close the deal.

Ha

 

[al_bundy]

commodities go in cycles of 10 years up and a few decades down or single digit returns for the entire decade so the reason commodity related stocks are crashing is probably because we are either ending the current commodity cycle or it's just a correction before the next runup. back in 1998 the nasdaq was down almost 50% at one point before rocketing to 5000 by early 2000.

really interesting thing is that Stalin's inventor of the 5 year plan used western capitalist economies as a base and studied commodity cycles going back hundreds of years. after he was killed people looked at his work and reconstructed some of the cycles and we are supposed to be close to a bottoming of a commodity cycle soon.

For everything else, stocks have been in deflation for the last 10 years. RE is starting a deflationary cycle that will probably last for years.

 

[unclemick]

Soooo - I should send those Vanguard computers rebalancing into stocks as they swoon - candy and flowers a few years from now cause they bought on the dip?

I'm glad I largely gave up my asset class selection/rebalancing - aka slice and dice (yes I'm a steely eyed/rational investor - not). We did have some good looking ladies at the New Orleans AAII chapter meetings though.

Martin Gramatica kicking wide last night was enough. I'll let the VG Target Retirement computers do the heavy rebalancing.

Meanwhile - down in the league cellar with the Saint's I may pick a few more good dividend stocks to maintain my Norwegian widow status.

I'm hoping we don't do a 1966 - 1982 type long time to sort out kinda of thing.

Dividends are ok but sheeesh!

heh heh heh - Pssst Wellesley. Rock up, party on .

 

[soupcxan]

This is small comfort to those of us like myself who started working and investing in the last 10 years. We continued to buy into a rising market through automatic contributions, and are now seeing any gains wiped out plus substantial losses on our original investment. Even with a decent bond allocation, total return is way negative, plus the destruction in purchasing power due to inflation only compounds the problem (i.e. stocks decline 15%, minus an additional 3-5%/year from inflation). It's pretty gloomy.

Someone who has held a consistent portfolio for +10 years is probably doing ok in the grand scheme of things. But I don't think that's the reality for most investors.

 

[Dawg52]

DOW down another 500+ points today. 8,000 just around the corner at the rate were going. That's a number I've seen predicted here and other sites. I just hope it stops there.

 

[ziggy29]

This is small comfort to those of us like myself who started working and investing in the last 10 years. We continued to buy into a rising market through automatic contributions, and are now seeing any gains wiped out plus substantial losses on our original investment. Even with a decent bond allocation, total return is substantially negative, plus the destruction in purchasing power due to inflation only compounds the problem (i.e. stocks decline 15%, minus an additional 3-5%/year from inflation). It's pretty gloomy.

Well, if we're fortunate, inflation WILL be a problem. Because if we hit a deflationary cycle, our portfolios are *really* toast.

 

[FUEGO]

This is small comfort to those of us like myself who started working and investing in the last 10 years. We continued to buy into a rising market through automatic contributions, and are now seeing any gains wiped out plus substantial losses on our original investment. Even with a decent bond allocation, total return is substantially negative, plus the destruction in purchasing power due to inflation only compounds the problem (i.e. stocks decline 15%, minus an additional 3-5%/year from inflation). It's pretty gloomy.

Someone who has held a consistent portfolio for +10 years is probably doing ok in the grand scheme of things. But I don't think that's the reality for most investors.

Hey, I'm definitely feeling the hurt, too! I finished college in late 2003 and have been working and investing since then. I'm not sure if I'm in the negative since I started investing, but I wouldn't be too surprised. But the way I look at it, I'm 4-5 years into my accumulation phase and I have established a fairly decent sized portfolio in spite of the downturn. In the last four to five years, I have been focusing on paying down debts (student loans, credit cards, and the mortgage). My house went up in value a decent amount. When I did my quarterly portfolio review on 9/30/2008, I was still wealthier then than I was one year earlier on 9/30/2007. After the first seven days of October, I'm not sure if I remain wealthier than I was a year ago or not though.

But you can't really focus on the day to day fluctuations in market price of your long term investments or it will drive you crazy. I know I'm investing with a multi-decade horizon, so even though the last 3 months have been ugly, it is (hopefully) not "different this time" and this will look like a blip on a ten or twenty year chart. Today I'm buying mutual funds at prices not seen since before I started really investing back in 2003-2004.