Rethinking my asset allocation.

[FREE866]

There was no S&P 500 prior to 1957.
Looks like the S&P 90 was used to track equity markets from 1926-1957.
Prior to 1926..? I’m not sure—I found conflicting info.

So when someone talks about the total return of the S&P 500 from 1920 to 2023, it’s fair to ask: what exactly are you using to represent stock market returns from 1920 to 1957?

In the 20s and 30s it consisted of like 100 stocks so I believe that representation is what is being referred to when 1926.

 

[OldShooter]

Based on this chart, I need to go 100% International stock. Looks like a no-brainer to me.

Of course, if these people actually could produce useful forecasts they would not be working as forecasters. They would be lounging on their yachts, having gotten rich trading for their own accounts.

 

[Echard]

Based on this chart, I need to go 100% International stock. Looks like a no-brainer to me.

I've always been underweight international and that worked out okay the last 10-15 years. International valuations are signficantly below the US right now, so one would think international should outperform. I was about to build up my international allocation significantly, until I looked at the GDP growth difference between the US and International over the last 10-15 years. Yikes. The US has grown at a much higher rate. It raises the question fundamentally as to whether international markets will produce worse investor returns over time, just because of the dynamics of those markets.

 

[Chuckanut]

According to Bard:







So last 40 years have been 135% of the average for last 103 years.

Just to be clear, these numbers don't account for inflation? Or do they?

 

[pb4uski]

Just to be clear, these numbers don't account for inflation? Or do they?

No, nominal returns.

 

[pb4uski]

There was no S&P 500 prior to 1957.
Looks like the S&P 90 was used to track equity markets from 1926-1957.
Prior to 1926..? I’m not sure—I found conflicting info.

So when someone talks about the total return of the S&P 500 from 1920 to 2023, it’s fair to ask: what exactly are you using to represent stock market returns from 1920 to 1957?

The S&P 500 index was established in 1957, although its history dates back to 1923. In 1923, Standard Statistics Company introduced an index covering 233 companies. The index as it is known today was introduced in 1957, when it was expanded to include 500 companies.

This source takes the returns back to 1926. https://www.slickcharts.com/sp500/returns

 

[pb4uski]

And if I cherry pick 1982 to 2022 the s and p did 11.6 %
And if I cherry pick 1942 to 1982 the s and p did 11.7%


I'm using this calculator:
https://www.officialdata.org/us/stocks/s-p-500/1942?amount=1000000&endYear=1982


Look, dystopian headlines/podcasts always sound smarter and garner more attention than do utopian headlines.

Betting that averages are going to do half of what they have done over history is incredibly misguided in my view , but you have your money I have mine. We make our choices.

No cherry picking going on at all other than in you mind.

The post that I was responding to indicated "40 year or so period (from early 80s to early 2020s)" and 1983-2023 would be an almost 40 year period from the early 80s to the early 2020s... so how in the world is that cherry picking?

The other period was from 1920 to the beginning of the 1983-2023 period.

The only cherry-picking was YOU omitting the Great Depression by starting in 1942.

 

[FREE866]

No cherry picking going on at all other than in you mind.

The post that I was responding to indicated "40 year or so period (from early 80s to early 2020s)" and 1983-2023 would be an almost 40 year period from the early 80s to the early 2020s... so how in the world is that cherry picking?

The other period was from 1920 to the beginning of the 1983-2023 period.

The only cherry-picking was YOU omitting the Great Depression by starting in 1942.

Re read my post. I did say if I cherry pick
My initial response was to the guy that said the last 40 years have been much different than the prior 40 years. His exact quote was "He also emphasized that the past 40 year or so period (from early 80s to early 2020s) was definitely not normal."


Thats an incorrect statement if you just move one or two years around, hence my comment of "cherry pick"


Again , you're 100% fixed income, I'm 98% equity. We obviously have different views on where we should put our money. I'm fine with it, I'm not sure you are though. I think the future will somewhat mirror the past. You don't. For me, even if you're right and stocks do 50% of what they have done in past I'll be fine.

 

[pb4uski]

... Again , you're 100% fixed income, I'm 98% equity. We obviously have different views on where we should put our money. I'm fine with it, I'm not sure you are though. I think the future will somewhat mirror the past. You don't. For me, even if you're right and stocks do 50% of what they have done in past I'll be fine.

I'm fine with it too and wishing you good luck. And I'll be fine whatever stocks do.

 

[dknighd]

I have had our money money in mutual funds since the late 80s. I have a paid for house, a $250k piece of land that is now for sale and a few other minor assets besides the Mutual fund / ETF portfolio.
At 68 I'm now starting to rethink my asset allocation. It was a great ride 2009 thru 2021. But not as much fun the last couple years. I went through 2001 and 2008 and not all that spooked by this, but at 68 starting to wonder if I should change my AA. We have been in spend down for 5 years, soon we will start SS. This will bring our withdrawal rate to 1% or under. I am mostly investing for my kids future as I feel we have more than enough, even if we had a 50% market plunge. After 5 years of withdrawals our balance is higher then 5 years ago.
We have $1.8M in a mix of mutual funds under SEPS, IRAs, Roths, HSAs and taxable accounts. Of that, about $300k is in high yield MM accounts, $200k after a Roth conversion, I wasn't sure I wanted in the market yet, and $100k in various accounts in MMs, mostly because of lack of action.
I'm leery of bond funds, because IF rates have peaked and do start to fall so will the bond funds. (I have a friend whose portfolio kept dropping as interest rates rose.) So individual bonds would be my choice as I can hold until maturity, but I have never bought a bond, or a CD or a TIP or any fixed income investment. That leaves me lost as to what to do or how to do it and if I should do it. I'm mostly in Vanguard but have an IBKR and a an HSA in Fidelity. I know this is a personal opinion, as there are investors with 100% equities and those with a mix of equities and bonds.
I'd like your comments.

What you are doing seems to be working. I would not make any sudden changes.

 

[Stormy Kromer]

International and bond funds have been a boat anchor for me for years. FA told me I needed them for proper diversification. I would be much better off with 90% SP500 index funds and some cash on the side. 10% or so in VG MM fund earning 5%. its that simple.

 

[pb4uski]

+2. Back when I had equities, I had as much as 30% of my 60% in stocks in international equities. After many years of poor performance I dumped them and never looked back. I'm from Missouri on international equities, until they show some sign of life I'm a skeptic.

 

[DangerDad]

Look, dystopian headlines/podcasts always sound smarter and garner more attention than do utopian headlines.

+1

In every market environment there will be folks who predict doom and gloom for this or that asset class. It’s true, the pessimists often sound smart, but remember the wisdom of Yogi Berra, who once said: “It’s tough to make predictions, especially about the future.” For this group of predictions I simply ignore the noise.

On the other hand, big reputable brokerage firms make projections for future returns, not in the spirit of doom and gloom but because it’s part of their business function. I don’t dismiss these projections. However I do not consider them to be actionable. As with most things, your mileage may vary.

 

[OldShooter]

... On the other hand, big reputable brokerage firms make projections for future returns, not in the spirit of doom and gloom but because it’s part of their business function. I don’t dismiss these projections. However I do not consider them to be actionable. As with most things, your mileage may vary.

I'm with Yogi. I dismiss all predictions. FWIW here's a chart from my Adult-Ed investing class, three major banks predicting an interest rate four months out:

 

[Exchme]

I hope OP procrastinated on making this change. The S&P is up 7% in the two weeks since the OP posted about wanting to dump stocks!

 

[HI Bill]

...I went through 2001 and 2008 and not all that spooked by this, but at 68 starting to wonder if I should change my AA. We have been in spend down for 5 years, soon we will start SS. This will bring our withdrawal rate to 1% or under. I am mostly investing for my kids future as I feel we have more than enough, even if we had a 50% market plunge. After 5 years of withdrawals our balance is higher then 5 years ago.

With a 1% WR, any AA should suffice. No need to change the AA, IMHO; you can leave much more to your kids...or you can spend a lot more! I'd recommend checking out the Blow that Dough thread!

 

[thefist]

You don't buy bonds or bond funds for the change in NAV. You buy them for the dividends they provide.

That's not entirely true. In the case of long term bonds, the price soars when rates drop in times of trouble. This provides a source of income while stocks are down or funds to rebalance into stocks while they are lower.

 

[thefist]

@time2, if you were to take a 75/25 AA with your portfolio, that looks like it would satisfy your cash needs and give the stocks room to grow for the kids.

As mentioned earlier, buy some treasuries to learn it. I know fidelity and TDAmeritrade will help you over the phone. Treasury ETFs aren't bad either, and you can pick a mix of maturities.

 

[WhenIsItTime]

That's not entirely true. In the case of long term bonds, the price soars when rates drop in times of trouble. This provides a source of income while stocks are down or funds to rebalance into stocks while they are lower.

Some are frustrated when recently rates soared, bond funds and stocks both fell.

 

[DrRoy]

I've always been underweight international and that worked out okay the last 10-15 years. International valuations are signficantly below the US right now, so one would think international should outperform. I was about to build up my international allocation significantly, until I looked at the GDP growth difference between the US and International over the last 10-15 years. Yikes. The US has grown at a much higher rate. It raises the question fundamentally as to whether international markets will produce worse investor returns over time, just because of the dynamics of those markets.

+1