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Return on S&P500 = 90 day treasuries since 1999
08-29-2007, 08:12 AM
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#1
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Thinks s/he gets paid by the post
Join Date: Aug 2004
Location: Houston
Posts: 1,448
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Return on S&P500 = 90 day treasuries since 1999
I spotted this chart on another forum...is anyone else concerned when stock returns appear to be doing well year-to-year, yet over the medium term they've been mostly flat versus a "risk-free" bond. Then when you take out inflation (+3%/year), taxes (~2%/year), and the decline in the value of the dollar (depends on which foreign currency you benchmark but it's substantial, as anyone who's been to Europe lately knows) and you've actually lost purchasing power over the last 8 years.
Obviously, this chart was put together by a perma-bear, he selected a particular time scale to make his point...but even so, I think it's easy to be fooled by reporting a 10% "average annual return" on your investments but in reality your true return is much less. The author also ignores the benefits from a more diversified portfolio over this time period - but when I look at returns YTD 2007, there seems to be a lot of correlation between large cap, small cap, and international stocks, particularly on the market's bad days, so I'm not sure diversification is enough to save us all.
Of course, I don't know what other investment options there are that
would have a better chance of generating real returns...
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08-29-2007, 08:17 AM
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#2
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Thinks s/he gets paid by the post
Join Date: Jun 2005
Posts: 4,381
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What exactly is your point here ?
Is it that there are select periods when being in bonds or T-bills will outperform the market ?
Should that be a surprise to anyone ?
I would note that this chart includes a very rough patch for stocks after the tech bubble burst.
Just look at a 10-year S&P500 chart to let you know that the S&P500 is just now breaking/approaching its peak from 2000.
Lets do the same comparison over the last 20 years and over the last 30 years and over the last 5 years. That should be enlightening.
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08-29-2007, 08:26 AM
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#3
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jun 2006
Location: Boise
Posts: 5,070
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That 3 Month Treasury Bill Total Return line looks fake to me, and there is no source cited for the data presented. Blech.
2Cor521
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"At times the world can seem an unfriendly and sinister place, but believe us when we say there is much more good in it than bad. All you have to do is look hard enough, and what might seem to be a series of unfortunate events, may in fact be the first steps of a journey." Violet Baudelaire.
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08-29-2007, 09:01 AM
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#4
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Aug 2006
Posts: 12,483
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Maybe I can dig up another chart that is more accurate.......
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Consult with your own advisor or representative. My thoughts should not be construed as investment advice. Past performance is no guarantee of future results (love that one).......:)
This Thread is USELESS without pics.........:)
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08-29-2007, 09:25 AM
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#5
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Thinks s/he gets paid by the post
Join Date: Jun 2006
Posts: 1,583
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Quote:
Originally Posted by SecondCor521
That 3 Month Treasury Bill Total Return line looks fake to me, and there is no source cited for the data presented. Blech.
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Back of the envelope says it looks OK to me. 4% yield over an 8 year period gives you a 37% gain.
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ER'd because I could never accept the loss of 3-month-long summer vacations.
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08-29-2007, 09:31 AM
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#6
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Moderator Emeritus
Join Date: Jan 2007
Location: New Orleans
Posts: 44,574
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Quote:
Originally Posted by twaddle
Back of the envelope says it looks OK to me. 4% yield over an 8 year period gives you a 37% gain.
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I think the graph looks like that because of the 8 year period that was selected, and it might look different if it was graphed over 15-20 years.
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08-29-2007, 09:33 AM
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#7
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Thinks s/he gets paid by the post
Join Date: Jun 2006
Posts: 1,583
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Quote:
Originally Posted by Want2retire
I think the graph looks like that because of the 8 year period that was selected, and it might look different if it was graphed over 15-20 years.
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Of course. I think the point of the graph is that expected future returns on stocks are low during times of crazy valuations, and that's exactly what we got -- low returns after crazy valuations.
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ER'd because I could never accept the loss of 3-month-long summer vacations.
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08-29-2007, 09:38 AM
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#8
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Thinks s/he gets paid by the post
Join Date: Jun 2005
Posts: 4,005
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or move the starting point of that 8 year period back a year or two and you could double your cumulative return.
Bottom line - data mining can produce beautiful gems to support whatever point you want to make.
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08-29-2007, 09:39 AM
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#9
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Thinks s/he gets paid by the post
Join Date: Jun 2005
Posts: 4,005
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Factor in taxes, and the SP would still be a winner.
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08-29-2007, 09:41 AM
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#10
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Thinks s/he gets paid by the post
Join Date: Jun 2006
Posts: 1,583
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Quote:
Originally Posted by justin
Factor in taxes, and the SP would still be a winner.
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Factor in emotional investors who sell low and buy high, and I think the t-bills would be the winner.
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ER'd because I could never accept the loss of 3-month-long summer vacations.
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08-29-2007, 09:51 AM
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#11
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Mar 2003
Posts: 18,085
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Actually, The pic reminded me how much better off you'd be as a DCA-er during such a period.
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- George Orwell
Ezekiel 23:20
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08-29-2007, 10:01 AM
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#12
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Full time employment: Posting here.
Join Date: Oct 2003
Posts: 961
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I checked the chart against the returns of VFINX and Prime MM over 1999-YTD. Prime MM and VFINX had same returns, which were minimal in real terms.
Of course, same thing happened from 1968-1982, both TSM and Tbills had same real return [according to Ken French's data library + Bureau of Labor Stats site]. Guess what happened, post 1982?
btw - Coffee House portfolio, Wellesly, Wellington, and similar Life Strategy fund all beat VFINX and Prime MM from 1999-ytd.
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08-29-2007, 10:09 AM
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#13
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Thinks s/he gets paid by the post
Join Date: Jun 2005
Posts: 4,005
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Quote:
Originally Posted by ats5g
btw - Coffee House portfolio, Wellesly, Wellington, and similar Life Strategy fund all beat VFINX and Prime MM from 1999-ytd.
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Yep - the guy making this graph had the benefit of hindsight to pick just about the worst performing major index over just about the worst time frame (he could have started a year or so later to make returns seem even worse).
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08-29-2007, 10:15 AM
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#14
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Thinks s/he gets paid by the post
Join Date: Jun 2006
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Hey, he could have picked NASDAQ. The S&P500 is the standard proxy for the market. BTW, bonds did pretty well during that period as well (thanks to declining interest rates).
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ER'd because I could never accept the loss of 3-month-long summer vacations.
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08-29-2007, 10:23 AM
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#15
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Thinks s/he gets paid by the post
Join Date: Jun 2006
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BTW, I just realized that the chart came from Hussman.
http://hussmanfunds.com/wmc/wmc070827.htm
This guy is a pretty rigorous economist who also happens to believe that we're currently in a period of high valuations (masked by extremely high recent earnings), and that future returns won't be much better than t-bills for a while....
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ER'd because I could never accept the loss of 3-month-long summer vacations.
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08-29-2007, 10:54 AM
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#16
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
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Well, it just goes to show, we should have cashed out our equities in 2000 and bought treasuries. Then in 2003 we should have gotten back into equities. Duh, what were we thinking? I wish someone would have shown me this chart back in 2000.
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08-29-2007, 10:58 AM
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#17
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Thinks s/he gets paid by the post
Join Date: Mar 2006
Location: Houston
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Quote:
Originally Posted by donheff
Duh, what were we thinking? I wish someone would have shown me this chart back in 2000.
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If someone did, would you have believed it? :-)
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08-29-2007, 11:01 AM
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#18
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Thinks s/he gets paid by the post
Join Date: Jun 2006
Posts: 1,583
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Yeah, if you read the article, that's essentially what he's telling you now.
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ER'd because I could never accept the loss of 3-month-long summer vacations.
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08-29-2007, 11:24 AM
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#19
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
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TIPS were raging bargains at the time, and not just prospectively.
Ha
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08-29-2007, 11:26 AM
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#20
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Apr 2003
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Quote:
Originally Posted by Want2retire
I think the graph looks like that because of the 8 year period that was selected, and it might look different if it was graphed over 15-20 years.
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Better hope so anyway!
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"As a general rule, the more dangerous or inappropriate a conversation, the more interesting it is."-Scott Adams
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