S&P 500 Index

[OldShooter]

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Originally Posted by RockDoctor ...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]

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Originally Posted by OldShooter 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]

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Originally Posted by Totoro 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.

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Originally Posted by Totoro 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]

Quote:

Originally Posted by 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 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]

Quote:

Originally Posted by 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?

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.)

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Originally Posted by target2019 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.)

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Originally Posted by SpartacusSchmartacus ... 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

[NW-Bound]

Here are the 3 largest ETFs that track the S&P 500.

SPY - $259B, 0.09% expense ratio, State Street Global Advisors
IVV - $148B, 0.04% expense ratio, Black Rock
VOO - $94B, 0.04% expense ratio, Vanguard

Interesting to see that SPY, the largest and oldest of them, has the highest ER.

[RockDoctor]

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Originally Posted by OldShooter The wild card that scares me is inflation.

Inflation scares me, too. I remember the late 70s and early 80s. That's why I've got the annual inflation numbers, as measured by the CPI, built in the program. That way I can look at returns above inflation. It's not perfect by any means, but the CPI is the best inflation indicator I could find with a long enough track record.

[SpartacusSchmartacus]

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Originally Posted by NW-Bound Here are the 3 largest ETFs that track the S&P 500. SPY - $259B, 0.09% expense ratio, State Street Global Advisors IVV - $148B, 0.04% expense ratio, Black Rock VOO - $94B, 0.04% expense ratio, Vanguard Interesting to see that SPY, the largest and oldest of them, has the highest ER.

yup and don't leave out VTI - for those who want total market coverage, or close to it. Another advantage of ETF's is the ability to buy only 1 share if desired ... some MF companies require a minimum to get started, something that might hinder getting invested at all for some.

[SpartacusSchmartacus]

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Originally Posted by RockDoctor Inflation scares me, too. I remember the late 70s and early 80s. That's why I've got the annual inflation numbers, as measured by the CPI, built in the program. That way I can look at returns above inflation. It's not perfect by any means, but the CPI is the best inflation indicator I could find with a long enough track record.

Inflation shouldn't scare someone whom is retired ... your holdings should reflect a better rate of return to offset costs. Those borrowing should fear it more.

[Totoro]

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Originally Posted by SpartacusSchmartacus Inflation shouldn't scare someone whom is retired ... your holdings should reflect a better rate of return to offset costs. Those borrowing should fear it more.

I disagree. Inflation risk and longevity are usually the biggest financial risks. Borrowers frequently borrow at fixed rates. Investors are on the other side of that coin .. ask most mortgage owners, they usually cheer on inflation.

Likewise: stocks tend to drop when inflation goes up, as multiples drop and earnings typically lag inflation.

And last but not least: taxes. I pay say 33% capital gains tax. Assuming 3% real interest, at zero inflation I pay 1% in taxes. Net yield: 2%. At 12% inflation though I pay 15% / 3 = 5% taxes. Result: -2% real yield.

Bye bye financial plan ..

[OldShooter]

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Originally Posted by Totoro ... Inflation risk and longevity are usually the biggest financial risks. ...

+1

Even a temporary return to 70s and 80s inflation would be devastating to most. A regression to the 50 year CPI mean of 4.1% of would be painful.

It always makes me nervous when 2 and 3% predictions get tossed around here. IMO those are pretty much best case.

[Independent]

Quote:

Originally Posted by NW-Bound Here are the 3 largest ETFs that track the S&P 500. SPY - $259B, 0.09% expense ratio, State Street Global Advisors IVV - $148B, 0.04% expense ratio, Black Rock VOO - $94B, 0.04% expense ratio, Vanguard Interesting to see that SPY, the largest and oldest of them, has the highest ER.

Yep, and Vanguard's biggest mutual fund, tracking the S&P 500
VFIAX - $434V, 0.04% expense ratio.

I don't see where the mutual fund is more expensive.

[Independent]

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Originally Posted by SpartacusSchmartacus Inflation shouldn't scare someone whom is retired ... your holdings should reflect a better rate of return to offset costs. Those borrowing should fear it more.

Do you remember the 1970's ?

If not, check FireCalc and see how people retiring in 1971 did.

[audreyh1]

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Originally Posted by Independent Do you remember the 1970's ? If not, check FireCalc and see how people retiring in 1971 did.

or 1966.

[ER Eddie]

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Originally Posted by OldShooter An S&P index fund is maybe the most popular stock purchase. Warren Buffet recommends it.

Good to hear. I just bought a bunch of Fidelity's 500 index fund. If Warren Buffet recommends it, I guess I'm ok.