Diversification: Finally doing its job.

[copyright1997reloaded]

You guys who have gold doing anything with it? I have a bunch of 1oz maples that I paid a lot less than the current $2900+ price. Wondering if I should "diversify" out of them and put it in bonds.

No, not selling. Buying on pull backs (miners) who get hit when the market gets hit and then have been recovering. Gold is 1-2% from its high, GDX is about 4-5% off its 52-week high (but a lot off its all time high), GDXJ between 5 and 6% off its 52 week high, but tons off its all time peak.

The gold chart is still a thing of beauty with a many-year cup and handle which it has zoomed out of. If the USA is going in the dumpster (which some posters seem to think), then the US $ will fall against other currencies which will help Gold (priced in US $). If inflation isn't beat (I'm in the camp and have been in that camp from when various officials were calling it "transitory") that also is a positive for gold. If the economy starts to "falter" we will eventually see panic in "fixing" the problem. There is an old wall street adage: "Wall street will stop panicking when policy makers panic."

Chart_20250312

Disclaimer: Part of the reason I upped precious metals (and associated miners) exposure dramatically (from almost nothing in 2012 to maybe 8% today is as a hedge. It is one of the few ways I can hedge my large exposure to the US financial system.

ETA: A gold discussion thread: Gold - 13 year cup and handle breakup

 

[mebden]

Diversification. My FA sold me on this about 30 years ago, it took 36 pages to print off my portfolio between the different stuff he sold me.

If I had invested it all in one fund, the Vanguard SP 500 I would have at least twice the money I have now. I did the math, its actually more. Makes me feel bad.

Bonds are a boat anchor no matter how you look at them. I've never met a happy bond holder. Because #1 they didn't get enough return or #2 they bought a high return and it got called. And they get taxed higher than capital gains like a stock fund. #3 the bond defaulted and they got $0 on their safe investment (Lehmean Bros etal)

Bonds safer than stocks ? I remember during a previous president's term about 23 years ago, he chose to have stocks paid before bond holders in a teacher's pension during an insolvency. I'll never trust bonds again. And International funds. International funds........ does anybody believe that International funds will beat the US long term ? I don't. And if you do believe it, which country is going to do it? Because an International Fund is going to have all the looser countries too. Buy the country that you think you will win because the other 100 countries in the fund will drag it down. Good luck, the last 30 years of diversified International investing haven't worked for me.

Rant over.

Except for this.

Advice to a young person. Buy the SP 500 index every month for 30+ years on your own, without a FA and their managed funds taking 2% a year, and you'll be ahead of 99% of everyone. Including the people trying to sell you their portfolios. Go to VG or Schwabb and set it til you're 60. You'll be loaded. And you won't have to listen to experts or worry about a thing.

Hey Stormy I agree I remember when I had a FA about 5 years ago and I watched what he was doing to my funds to make it so called diversified and he had money in 60 different individual stocks and I asked him what he was doing he said diversified I said I don't think so and fired him I'm still trying to let some old stocks he had me invested to show 1 dollar positive so I can sell it and guess what they still not positive they are low dollar amounts so I just keep them and laugh every time I look at them and even a couple went belly up. He would never admit he was getting kickbacks from these duds but he sure was pissed when I said your fired

 

[Koolau]

I had an FA who cried when I fired here (I was gentle but firm). She wasn't terrible but she was expensive and not all that productive. I didn't need her to do what she was doing for me.

 

[VanWinkle]

While we wait for foreign stock funds to catch up after trailing US funds by large amounts, we talk about ditching bond funds that had one terrible year in the last 10 years. One is a diversifier of risk assets and the other has near the same risk as US stocks. I have a small amount of foreign stock funds, but also have 50% of my risk reduction diversifier in bond funds. Let's not tout foreign stocks ability to reduce risk without putting bonds ahead of them for diversifying risk. VFWAX lost over 15% in 2022 which was more than BND.

 

[Al18]

BND have had at least 10 years of bad performance, with a CAGR of 1.47%. VFAWX had a CAGR of 5.11% according to https://www.portfoliovisualizer.com/fund-performance?s=y&sl=5PuxvYkLaeFXaoM6cAKVCH

As a long-time CD investor, I can tell you I was getting 2.0%-3.2% APY from 10 years ago to 3 years ago, and averaging 4.25% during the past 3 years from banks and credit unions.

 

[VanWinkle]

BND have had at least 10 years of bad performance, with a CAGR of 1.47%. VFAWX had a CAGR of 5.11% according to https://www.portfoliovisualizer.com/fund-performance?s=y&sl=5PuxvYkLaeFXaoM6cAKVCH

As a long-time CD investor, I can tell you I was getting 2.0%-3.2% APY from 10 years ago to 3 years ago, and averaging 4.25% during the past 3 years from banks and credit unions.

The 10 year performance is tainted with the one terrible year- that was 2022. It was an unprecedented increase in interest rates that led to the 2022 decline. I think bonds will make a rebound, much like most investors in foreign stock funds think they will rebound at some point.

 

[pb4uski]

The 10 year performance is tainted with the one terrible year- that was 2022. ..

How are those cherries tasting?

The years that you like have increases in value due to declines in interest rates included. If you ignore 2022 you're just playing ostrich.

 

[VanWinkle]

How are those cherries tasting?

I don't know what you are referring to, but I'm sure it's not a friendly response.

 

[pb4uski]

What I'm saying is that you are cherry picking the data by wanting to discount a year that you don't like and including years that you do like. Not unfriendly at all, just critical of your approach, that's all.

 

[Dtail]

The 10 year performance is tainted with the one terrible year- that was 2022. It was an unprecedented increase in interest rates that led to the 2022 decline. I think bonds will make a rebound, much like most investors in foreign stock funds think they will rebound at some point.

How much lower can interest rates realistically drop with the current policies being implemented and thus IMHO bond funds do not cut it. I do agree with the concept of potential comparable fgn vs US equity risk.
Thus there is a case for bond like diversification, just not bond funds.

 

[skipro33]

I keep my money in either S&P or guaranteed savings. It's starting to look like putting some of the savings into S&P might be the thing to do. I am absolutely sure of one thing; the S&P will recover, and I have 5 years before RMD's to worry about sticking with this strategy.

 

[Markola]

….most investors in foreign stock funds think they will rebound at some point.

No one knows but, so far, 2025 could be that point:

Year to date returns:
Vanguard FTSE Europe Stock ETF: +14.22%
Vanguard FTSE Pacific Stock ETF: +4.9%
Vanguard Total US Stock ETF: -$4.24%

So that’s a 10 point spread so far this year between Europe and the US. Markets turn fast and, as we know, if one misses a key trading day or two of any asset class, longer term returns are mediocre.

 

[OldShooter]

No one knows but, so far, 2025 could be that point:

3-5 years should tell the tale. The major wild card is Trump. (Statement of fact, not political.)

 

[Dtail]

3-5 years should tell the tale. The major wild card is Trump. (Statement of fact, not political.)

Absolutely. Take tariffs off the table and the US market would have different returns so far this year.

 

[Chuckanut]

How much lower can interest rates realistically drop with the current policies being implemented and thus IMHO bond funds do not cut it. I do agree with the concept of potential comparable fgn vs US equity risk.
Thus there is a case for bond like diversification, just not bond funds.

I tend to agree. Deficit spending in the first five months of this fiscal year is over 300 billion more than the same time last year.

https://www.cnbc.com/2025/03/12/us-budget-deficit-surged-in-february-passing-1-trillion-for-new-year-to-date-record.html

For the year, the deficit totaled $1.15 trillion through the first five months of fiscal 2025. The total is about $318 billion more than the same span in 2024, or roughly 38% higher, and set a record for the period.

 

[Koolau]

Absolutely. Take tariffs off the table and the US market would have different returns so far this year.

And next year as well.

 

[mrfeh]

What I'm saying is that you are cherry picking the data by wanting to discount a year that you don't like and including years that you do like. Not unfriendly at all, just critical of your approach, that's all.

Looking at the last 5 or 10 years is also cherry picking.

 

[pb4uski]

Looking at the last 5 or 10 years is also cherry picking.

To be clear, I never suggested any particular time horizon. You mentioned 10 years and I didn't opine on 10 years one way or the other.

But even selecting 5 or 10 years isn't as bad cherry picking as just ignoring a year that you don't like!

 

[big-papa]

To be clear, I never suggested any particular time horizon. You mentioned 10 years and I didn't opine on 10 years one way or the other.

But even selecting 5 or 10 years isn't as bad cherry picking as just ignoring a year that you don't like!

And this is why, whenever I compare things, I prefer to use a tell-tale chart.

Cheers.

 

[Koolau]

And this is why, whenever I compare things, I prefer to use a tell-tale chart.

Cheers.

I guess I'm not familiar with that term.

 

[Fermion]

I guess I'm not familiar with that term.

I think it is a chart that when you minimize it, you can still hear the audio?

 

[big-papa]

I guess I'm not familiar with that term.

It's the cumulative return (point for point) of one investment or portfolio divided by the cumulative return (again, point for point) of a second investment or portfolio.

This lets you see any start date and any end date combination when you're comparing the cumulative returns of one investment relative to another.

An example using the Simba backtesting spreadsheet from bogleheads when looking at small cap value relative to an SP500 fund.

You can see times when Small Cap Value (SCV) outperformed an SP500 fund (positive slope or trend), times when it underperformed (negative slope or trend) or performed at par with SP500 (more or less horizontal)

To me, it's one of the most powerful ways to visualize whether there has been consistent outperformance or underperformance and if outperformance isn't consistent, just how long, historically, you might have had to wait for outperformance to occur.

Note: Some of the data in Simba's spreadsheet is synthetic - that is, it was derived from the source data that the CRSP small cap value index uses today in some cases or uses index data, adjusted for fund e/r in other cases. Simba has data going back to the 1920's for this particular chart, but I arbitrarily started the analysis in the late 1960's. I'm not making any statements about whether somebody should invest in small cap value, just illustrating how one might want to visualize such data as part of a decision process.

 

[Koolau]

Thanks so much for the tutorial. It's much appreciated.

 

[Route246]

SNIP===

Rant over.

Except for this.

Advice to a young person. Buy the SP 500 index every month for 30+ years on your own, without a FA and their managed funds taking 2% a year, and you'll be ahead of 99% of everyone. Including the people trying to sell you their portfolios. Go to VG or Schwabb and set it til you're 60. You'll be loaded. And you won't have to listen to experts or worry about a thing.

Stormy, I did something like this over 30 years ago and I'm paying huge amounts of tax now on all of my LTCG that I'm reallocating!!! Couldn't be happier making those huge tax payments as I reallocate a bit into treasuries. I know I am better off with all of this index fund asset mass than if I had day traded, listened to a FA or paid huge expenses (anything greater than 0.10% is considered huge for me). I give this advice to young people. Not many listen but I know those who do will be happy when they become old like me.

 

[COcheesehead]

I added a long short fund to the portfolio QLENX. I have continued to add to and now it is my largest holding. Over 10% of my portfolio. If you really want something that zigs when the market zags, you might want to look into it. Over 30% one year returns, 21% five year, 11% life. Almost completely uncorrelated to the market.