Fascinating to explore portfolio perf vs time periods

[ejman]

I was just playing around with the backtest portfolio Asset allocation tool https://www.portfoliovisualizer.com/backtest-portfolio#analysisResults and just for the fun of it I picked the time period from Jan 2000 to the present. I picked that time period because it seems to me like the tremendous stock market results of the 1990's and the frothy stock valuations at the end of that period resemble the current situation to some extent.



The common perception now seems to be that an all stock index fund such as the Vanguard index 500 (VFINX) will outperform a balanced fund such as the Vanguard Wellinton fund (VWELX) (60/40 stocks/bonds) given a long enough period say 20+ years. Much to my surprise, it turns out that (dividends reinvested) VWELX soundly trounced the S&P 500 ($59,762 vs $46,458) or CAGR of 8.53% vs 7.29% for the time period Jan 2000 to October 2021



The other surprise to me is that I had thought that Berkshire Hathaway would blow those two out of the water by miles for the same time period. Well, it did do better but not by a huge margin over VWELX with a CAGR of 9.81% with higher volatility than S&P 500 and much higher than Wellington.


My conclusion since nobody knows nuthin' including yours truly is that I'll stick to my balanced approach and go back to sleep.

 

[target2019]

Twenty years is a good pick, so try rolling 20 year periods since 1950 or another start date.

 

[ImThinkin2019]

Nice post. Our philosophy is that equities outperform bonds over the very long term, but in the short term they are not predictable. Therefore we are living on our fixed income portfolio and letting the equity portfolio do whatever it will.

Having lived through several flat markets ourselves, we agree that this time is eeringly familiar with the period starting in 2000 in some ways. But we also absolutely agree that we are poor at predicting what the stock market will do.

 

[big-papa]

This period was also part of the great bond bull market that started in the early 1980's when Volker jacked up interest rates to tame inflation. Rates dropped for over 30 years after that after that creating fat returns for anybody holding bond funds. No such bull market in bonds had ever been seen in the US before that. I do wonder if a lot of people with balanced portfolios might have some skewed expectations going forward based on this relatively short time period.

Cheers.

 

[mrfeh]

My conclusion since nobody knows nuthin' including yours truly is that I'll stick to my balanced approach and go back to sleep.

Your chosen time period includes a huge bull run for bonds. I would not expect that to happen again anytime soon.

 

[jebmke]

This period was also part of the great bond bull market that started in the early 1980's when Volker jacked up interest rates to tame inflation. Rates dropped for over 30 years after that after that creating fat returns for anybody holding bond funds. No such bull market in bonds had ever been seen in the US before that. I do wonder if a lot of people with balanced portfolios might have some skewed expectations going forward based on this relatively short time period.

Cheers.

I agree; bonds still have an important role to play for stabilizing a portfolio but not for return. Expected returns are negative across the entire yield curve.



But, as a fellow sailor once remarked to me "when you really need an anchor, nothing else will do."

 

[ejman]

This period was also part of the great bond bull market that started in the early 1980's when Volker jacked up interest rates to tame inflation. Rates dropped for over 30 years after that after that creating fat returns for anybody holding bond funds. No such bull market in bonds had ever been seen in the US before that. I do wonder if a lot of people with balanced portfolios might have some skewed expectations going forward based on this relatively short time period.

Cheers.

I've read different variations of your interpretation many times but I don't think it is correct . By 2000 interest rates had substantially declined from the rates implemented by Volker to control inflation in the 1980's. So the bulk in the gains for the bond portion of balanced funds happened in the 80's and 90's. For example, 10 year treasuries were down to the 5% range early 2000's, 3% range by the mid 2000's and 2% to 1% for the decade of the 2010's and continuing to today. https://www.multpl.com/10-year-treasury-rate/table/by-year

 

[Chuckanut]

This period was also part of the great bond bull market that started in the early 1980's when Volker jacked up interest rates to tame inflation. Rates dropped for over 30 years after that after that creating fat returns for anybody holding bond funds. No such bull market in bonds had ever been seen in the US before that. I do wonder if a lot of people with balanced portfolios might have some skewed expectations going forward based on this relatively short time period.

.

+1

That's why I bailed out of most of my bond funds a while back. The money is in CDs, online bank accounts, short-term bond funds and now I-bonds. Other than what is in Vanguard Wellesley I have no medium or long term bonds or bond funds. Return Free Risk, isn't that how the Sage of Omaha describe today's bond market?

 

[Time2]

I find the period from Apr 2000 - Dec 2012 interesting, as I don't remember this being so bad. I used PEOPX as a generic S&P 500 equivalent, (not sure it is typical) It shows 14% growth over 11 yrs-8 months.
Dividends not reinvested.
And yet, Here we are!