lwp2017
Recycles dryer sheets
- Joined
- Feb 10, 2014
- Messages
- 157
I posted this on Bogleheads, would appreciate your perspectives.
How can a 3-Fund Portfolio investment strategy using a SP500 index fund ( VINIX) still be valid with only ten companies (FAANGS) dominating market earnings?
No longer is risk of loss spread amongst a broad pool of 500 companies in different sectors; changes in a few companies or a single sector ( technology) significantly affects the index. Thus changes in a few results in greater volatility.
Thus a key benefit of a stock index fund from risk diversification is greatly diminished.
Personal Perspective for context:
I've been using Vanguard index funds with satisfaction for 25+ years, I stayed 70/30 in 2000 and 2008 and did well in the long run as the stock side nicely rebounded.
However, this spring 2018 I transitioned from a three fund portfolio to a fixed income and bond portfolio yielding avg 2.7% until I gain a personal comfort level with these atypical market conditions.
I just retired in April, had been concerned our retirement plans were vulnerable to sequence of return risks with a FANGS dominated stock portfolio. Eliminating VINIX allowed me to sleep better.
I'm fortunate to have living expense needs met with a pension and the 2.7% fixed income return allows all of our retirement plans to be fulfilled.
We are in a high spend travel phase (3% withdrawal rate) for the next 10 years, assuming health stays good, then we will phase back to 2.5% as the travel itches are satiated.
I don't expect these market conditions to last more than 2 or 3 years and do plan to transition back into SP500 index fund assuming a reversion to the historical mean.
" Market timing" is a a red flag, but I see these conditions analogous to being in a hurricane landfall zone of uncertainty. It's gonna hit, just when and how bad?
Thanks
Reference:
https://www.bloomberg.com/news/articles ... half-gains
"David Kostin, chief U.S. equity strategist at Goldman Sachs, highlighted that more than 100 percent of the S&P 500’s total return of nearly 3 percent in the first half is attributable to just 10 equities. Amazon.com Inc. alone accounts for roughly two-fifths of the benchmark gauge’s advance"
How can a 3-Fund Portfolio investment strategy using a SP500 index fund ( VINIX) still be valid with only ten companies (FAANGS) dominating market earnings?
No longer is risk of loss spread amongst a broad pool of 500 companies in different sectors; changes in a few companies or a single sector ( technology) significantly affects the index. Thus changes in a few results in greater volatility.
Thus a key benefit of a stock index fund from risk diversification is greatly diminished.
Personal Perspective for context:
I've been using Vanguard index funds with satisfaction for 25+ years, I stayed 70/30 in 2000 and 2008 and did well in the long run as the stock side nicely rebounded.
However, this spring 2018 I transitioned from a three fund portfolio to a fixed income and bond portfolio yielding avg 2.7% until I gain a personal comfort level with these atypical market conditions.
I just retired in April, had been concerned our retirement plans were vulnerable to sequence of return risks with a FANGS dominated stock portfolio. Eliminating VINIX allowed me to sleep better.
I'm fortunate to have living expense needs met with a pension and the 2.7% fixed income return allows all of our retirement plans to be fulfilled.
We are in a high spend travel phase (3% withdrawal rate) for the next 10 years, assuming health stays good, then we will phase back to 2.5% as the travel itches are satiated.
I don't expect these market conditions to last more than 2 or 3 years and do plan to transition back into SP500 index fund assuming a reversion to the historical mean.
" Market timing" is a a red flag, but I see these conditions analogous to being in a hurricane landfall zone of uncertainty. It's gonna hit, just when and how bad?
Thanks
Reference:
https://www.bloomberg.com/news/articles ... half-gains
"David Kostin, chief U.S. equity strategist at Goldman Sachs, highlighted that more than 100 percent of the S&P 500’s total return of nearly 3 percent in the first half is attributable to just 10 equities. Amazon.com Inc. alone accounts for roughly two-fifths of the benchmark gauge’s advance"
