S&P 500 Index

[Chuckanut]

The total us bond only goes back to 1987, you can run up to 3 portfolio at the same time.

Bingo! Thanks. I knew I must have overlooked something, or we all missed one heck of an opportunity in Intermediate Treasuries.

 

[Scots]

You could do much worse than a fund that's done 9-10% for decades.

 

[NYEXPAT]

Oh and about your little dig "one who doesn't want to invest in PetSmart You like to put down the other people as uneducated. I would say the practical person was the smart one.

I think this is what he meant ?

 

[AginMS]

Well, we'll find out. Remember though, that many people have observed that the most expensive four words in investing history are: "This time it's different."

The nice thing about backtesting is that you can usually come up with a set of parameters to prove whatever point you are trying to make. Playing with Portfolio Visualizer a little more it is easy to see the decades when one or the other portfolio outperformed. The last decade or so, of course, US-only outperformed. So it is soon probably international's time; maybe our president is holding a lot of non-US stock.

But it doesn’t seem to me like alaska55 is cherry picking his backtesting. He looks back at the previous 32 years. If anything, it seems like you are are the one cherry picking to prove a point b/c you are referencing shorter 10 year periods where one outperforms the other, vice a long-term investing strategy (32 years) where one isn’t trying to “time” the market based on a decade of good data.

 

[explanade]

Facebook dropped like 20% and dragged down the S&P today by 8.5, while the Dow was up 113 and the NASDAQ was down 80.

Too FAANG dependent?

 

[Aerides]

Too FAANG dependent?

From Axios today:
"According to a Bank of America Merrill Lynch research note, the so-called FAANG stocks — Facebook, Amazon, Apple, Netflix and Alphabet (Google) —were single-handedly responsible for the S&P 500 being positive through the first half of 2018. Without them, the index’s first half performance would have been -0.73%."

 

[OldShooter]

But it doesn’t seem to me like alaska55 is cherry picking his backtesting. He looks back at the previous 32 years. If anything, it seems like you are are the one cherry picking to prove a point b/c you are referencing shorter 10 year periods where one outperforms the other, vice a long-term investing strategy (32 years) where one isn’t trying to “time” the market based on a decade of good data.

Fair enough criticism. I was trying to make the point that various backtest starting points will produce quite different results. I am actually not much of a fan of backtesting, particularly for things like comparing sectors, because sectors are constantly changing relative to one another. Using history with international stocks feels particularly uncertain to me, with the rise of China, the turmoil of the BRICS countries, and the waxing and wanting of the EEC --- all much more recently than 32 years.

And note that probably no one's long term investing strategy involves buying on day one and sitting for 32 years. Either one is accumulating or one is spending down. So that kind of backtest isn't very real world.

So, I"m still in the "buy everything" camp; backtesting over 90 years or more that strategy seems to have held up. Beyond that, I am firmly in the "clueless" camp on what will happen next.

 

[target2019]

This Marketwatch article refers to the original topic of this thread:
https://www.marketwatch.com/story/f...a-better-sp-500-index-fund-for-you-2018-07-26
So, if your examining an S&P 500 slice of your asset allocation, and fear the FAANG, there is a way to go cap-weighted, per the article.
As mentioned in this thread, just go Total US Market, and ignore the news.

 

[pb4uski]

From Axios today:
"According to a Bank of America Merrill Lynch research note, the so-called FAANG stocks — Facebook, Amazon, Apple, Netflix and Alphabet (Google) —were single-handedly responsible for the S&P 500 being positive through the first half of 2018. Without them, the index’s first half performance would have been -0.73%."

I dunno... presumably that money would have still gone into equities somewhere so I'm not sure if just carving those FAANG stocks out is the right analysis.

 

[exnavynuke]

Fair enough criticism. I was trying to make the point that various backtest starting points will produce quite different results. I am actually not much of a fan of backtesting, particularly for things like comparing sectors, because sectors are constantly changing relative to one another. Using history with international stocks feels particularly uncertain to me, with the rise of China, the turmoil of the BRICS countries, and the waxing and wanting of the EEC --- all much more recently than 32 years.

And note that probably no one's long term investing strategy involves buying on day one and sitting for 32 years. Either one is accumulating or one is spending down. So that kind of backtest isn't very real world.

So, I"m still in the "buy everything" camp; backtesting over 90 years or more that strategy seems to have held up. Beyond that, I am firmly in the "clueless" camp on what will happen next.

Here's the problem with backtesting: it tells you nothing of the future. If you had backtested investment strategies 100-150 years ago there would have been no results that told you investing in that new country "America" was a good idea. If you'd backtested investing in 1940, you'd probably still conclude that the more developed European countries were probably still the best bet. 60 years later you'd look pretty dumb for not investing in the US though. The point of putting the rest of the world in your portfolio isn't to do so because it's historically the highest possible return, it's because moving forward it might be, and having that diversification across countries can be a positive.

The real counter-argument to that is that you can say the global companies in the US already give you exposure to that growth so maybe you don't need it specifically added in.

Personally, I like investing in both US and international index funds, though I weight my international investments more heavily in the developed world and a smaller percentage in the more volatile emerging markets.

 

[AginMS]

My view, backtesting is simply one more piece of information I put in my calculus when researching whether to change my investing strategy or not. I don't ignore historical results, and I don't base my entire decision making process on it either.

Of course it can't tell you the future, but what can? All we can do is our due diligence, research the economic principles, investment strategies, and trends that are important to us, internally weight all that information, and make an investment decision.

Today, I'm a buy and hold type in the accumulation phase of life, so I very rarely change my investments. But when I settled on my current mix of funds years ago, historical performance was part of my decision making process.

 

[OldShooter]

... The point of putting the rest of the world in your portfolio isn't to do so because it's historically the highest possible return, it's because moving forward it might be, and having that diversification across countries can be a positive.

The real counter-argument to that is that you can say the global companies in the US already give you exposure to that growth so maybe you don't need it specifically added in.

Personally, I like investing in both US and international index funds, though I weight my international investments more heavily in the developed world and a smaller percentage in the more volatile emerging markets.

+1 and said better than I did.

I've never been a fan of the argument that I would get adequate international exposure with a US-only portfolio, but the fact is that as we live in a "flat" (per Tom Friedman) world, the correlation between US-only and International is increasing. So the diversification value of including international is declining. Maybe at some point we'll be so flat that the correlation becomes 1.0.

Re emerging markets, I am content that they are proportionally represented in my "everything" fund, VTWSX. I do have a little money in a test portfolio with a guy who has access to DFA funds though. If you like fine tuning, those guys have funds that let you build portfolios with surgically tailored tilts. Very interesting, but only possible through a DFA-blessed FA. I guess that's why they don't get discussed here very much.

 

[alaska55]

Fair enough criticism. I was trying to make the point that various backtest starting points will produce quite different results. I am actually not much of a fan of backtesting, particularly for things like comparing sectors, because sectors are constantly changing relative to one another. Using history with international stocks feels particularly uncertain to me, with the rise of China, the turmoil of the BRICS countries, and the waxing and wanting of the EEC --- all much more recently than 32 years.

And note that probably no one's long term investing strategy involves buying on day one and sitting for 32 years. Either one is accumulating or one is spending down. So that kind of backtest isn't very real world.

So, I"m still in the "buy everything" camp; backtesting over 90 years or more that strategy seems to have held up. Beyond that, I am firmly in the "clueless" camp on what will happen next.

Go back and read my 1st post, I started with 10k and added $200 a month for the 32 years. The reading comprehension on this board can be down right terrible.

 

[zippy2020]

S&P companies must be domiciled in the US to be included in the Index, with shares listed on the NYSE or NASDAQ. Thus, when Chrysler was bought by Fiat, it was delisted.

The S&P Index changes over time as companies are dropped and new companies brought in. Those changes are announced in advance to the financial media.

It's estimated that roughly one-quarter of S&P Index total revenues are from overseas earnings.

HTH.

 

[RockDoctor]

The nice thing about backtesting is that you can usually come up with a set of parameters to prove whatever point you are trying to make.

Very true. I built myself a "simple" S&P 500 backtester. Lets me input an initial investment, % cash, OER, withdrawal rate (either $ or %), an average inflation %, an anticipated number of years the portfolio needs to last, and the number of repetitions in the Monte Carlo simulation. Cash is assumed to return 0%. Output is the number (and %) of times the money runs out before the time period is up. Sounds good, right? Well, yes and no.

I've been looking at a 40-yr time period, and run the simulation 10,000 times. So, for each run, do I take a random 40-year time period? Or do I select the results for 40 randomly-selected years? Virtually all of the online calculators I've seen use the former method. However, the latter method yields a better chance of outliving one's funds.

Some results: 40 years, 3.4% withdrawal rate, 60/0/40 AA
40-year chunks - never go broke
40 individual years: 14.2% chance of going broke

 

[OldShooter]

...I built myself a "simple" S&P 500 backtester. Lets me input an initial investment, % cash, OER, withdrawal rate (either $ or %), an average inflation %, ...

Yeah. It's fun, but as you say its relevancy to the future is IMO very debatable.

The wild card that scares me is inflation. If you go back for a 30 year average you get a number around 2.6% IIRC. And 30 years sounds like a long time, but that time period starts after the real exciting times for inflation in the 70s and 80s. Go back 40 years to pick those years up and your 2% number spikes to over 4%.

To further thicken the stew, I believe that there is a reasonable chance that the dollar exchage rate will take a big hit in my lifetime. Too many people hate us and hate the fact that our position as the word's reserve currency allows us to use our banking system to hassle people we don't like. A 20% drop in the dollar's value translates into a 25% price increase on imported goods (clothes, electronics, etc.) and on commodities that are traded worldwide (oil, most agricultural produicts, etc.). But our exports (Boeing, Caterpillar, etc.) become more competitive. So ... IMO an unforecastable mess.

In effect, using backtesting to plan is another kind of economic forecasting. The quotation mis-attributed to John Kenneth Galbraith applies: "The purpose of economic forecasting is to make astrology look good."

 

[Totoro]

A 20% drop in the dollar's value translates into a 25% price increase on imported goods (clothes, electronics, etc.) and on commodities that are traded worldwide (oil, most agricultural produicts, etc.). But our exports (Boeing, Caterpillar, etc.) become more competitive. So ... IMO an unforecastable mess.

Also, only 15% of GDP is imported and imports are not fully tracked necessarily, especially when dealing with e.g. services and software.


We all may be just one Maduro or Chavez away from misery? Not to mention supervolcanoes, demographics, aging and meteor strikes.

 

[OldShooter]

Also, only 15% of GDP is imported and imports are not fully tracked necessarily, especially when dealing with e.g. services and software.

Yes. Probably the bigger impact will be on commodities that are priced based on world markets. Ag products like the currently-popular soybeans and pork. Fossil Fuels. Forest products. Metals. I am too lazy to chase detailed numbers but I'm sure that the hit would be far, far, larger than just whatever is included in "imports" per se.

We all may be just one Maduro or Chavez away from misery? Not to mention supervolcanoes, demographics, aging and meteor strikes.

Yes. Kidding aside, this is why I cock my head a bit when I read here intense arguments about one or two tenths of one percent differences in withdrawal rates or differences of 5% in AA. I have never found life to be that predictable.

 

[SpartacusSchmartacus]

going to throw in here with a bit of advice. First, don't buy a mutual fund that represents the"S&P" ... mutuals have expenses attached. Why pay them to invest in something that simply follows the market? Get an acct set up with any of the big online trading companies. I have a few but like Think or Swim for the low trading fees but they are all competing with each other, not much difference anymore.
Buy the SPY instead, it's an ETF that represents the market we are speaking of ... with very little in the way of expenses. More importantly, if you feel you want to sell NOW for whatever reason you can be liquid in seconds. The mutuals, well they'll get back to you, could be the next day ... or not?

 

[street]

^ that is some more words of wisdom. Thanks

 

[target2019]

going to throw in here with a bit of advice. First, don't buy a mutual fund that represents the"S&P" ... mutuals have expenses attached. Why pay them to invest in something that simply follows the market? Get an acct set up with any of the big online trading companies. I have a few but like Think or Swim for the low trading fees but they are all competing with each other, not much difference anymore.
Buy the SPX instead, it's an ETF that represents the market we are speaking of ... with very little in the way of expenses. More importantly, if you feel you want to sell NOW for whatever reason you can be liquid in seconds. The mutuals, well they'll get back to you, could be the next day ... or not?

Is this article generally correct about the difference between SPX and SPY?
I thought it was not possible to buy the index itself, but now see I was wrong.

 

[NW-Bound]

When I first ventured outside of mutual funds, and before I traded individual stocks, I bought SPY and DIA. They are SPDR's ("Spiders") representing the S&P 500 and the Dow Jones Industrial. They are the granddaddies of all ETFs.

This brings back memory. These were my first trades ever in the Schwab account that I opened in 1998. Transaction costs at that time were $29.98, so a round trip would be $60.

Today, my equity trades at Merrill Edge are free, and option trades are $3.30. And I still do not do day trade. Would have if I know how to make money doing that.

 

[SpartacusSchmartacus]

Where is my mind, changed the X to a Y in my post. You only trade "options" on SPX but you can buy SPY outright and hold it forever.

I do lots of SPX and other options but very little stock or index buying any more.

 

[OldShooter]

going to throw in here with a bit of advice. First, don't buy a mutual fund that represents the"S&P" ... mutuals have expenses attached. Why pay them to invest in something that simply follows the market? Get an acct set up with any of the big online trading companies. I have a few but like Think or Swim for the low trading fees but they are all competing with each other, not much difference anymore.
Buy the SPY instead, it's an ETF that represents the market we are speaking of ... with very little in the way of expenses. More importantly, if you feel you want to sell NOW for whatever reason you can be liquid in seconds. The mutuals, well they'll get back to you, could be the next day ... or not?

Psst .... SPY is a mutual fund that tracks the S&P 500. It's just like every other S&P 500 fund, whether traditional or exchange-traded.

All S&P funds are sector funds investing in large cap US companies. If you consider "the market" to be the world, it represents about 40% of "the market."

(Edit 2: Sorry, I repeated @SpartacusSchmartacus' error and typed SPX instead of SPY. Now fixed.)

Is this article generally correct about the difference between SPX and SPY?
I thought it was not possible to buy the index itself, but now see I was wrong.

It's accurate to the extent that ETFs can be traded during the day and traditional mutual funds cannot. There is also a cost that @SpartacusSchmartacus doesn't mention: the bid/ask spread. For a long term investor this is negligible but for a trader it can be a factor.

Re buying an index, technically that is not possible. As a practical matter though, fees on funds tracking broad indices like the S&P and on total market funds are so low (a few basis points) that IMO you are buying the index at near-zero cost. (Edit: I forgot about Fidelity's new deal: zero fees. So, better yet if you go that route.)

... You only trade "options" on SPX but you can buy SPY outright and hold it forever.

Sorry. Factually incorrect.

 

[SpartacusSchmartacus]

so Old Shooter do you sell mutual funds, don't get me started on them?
And what is factually incorrect mentioning SPY as an ETF which is traded on the exchange market? And BTW, SPX is an "option only" traded index. pssssst