Down goes the Dow

Dollar cost averaging is fine. You just need to be aware that at the current valuation a dollar invested in the S&P today will return little more than dividends over the next ten years.

I don't believe that for a second.

OK. Here are some facts: a dollar invested in the S&P did not earn anything more than dividends from March 2000 thru May 2013. So, with market valuations at historical highs, what other than faith, gives you confidence that I am wrong?

Fact: From 2009 until today the Federal Reserve balance sheet increased from $900 billion to $4.4 trillion. The Fed ended the Quantitative Easing program in December 2014. Year to date the Dow and S&P have returned little other than dividends.

What may I ask becomes the catalyst to drive markets higher?

Ghost of Igloi wrote:

But, even over a long time horizon, a portfolio that has some bonds will outperform an all equity portfolio...

This ^ is false.

Ghost of Igloi wrote:

OK. Here are some facts: a dollar invested in the S&P did not earn anything more than dividends from March 2000 thru May 2013. So, with market valuations at historical highs, what other than faith, gives you confidence that I am wrong?

I once read a book entitled "How to Lie With Statistics". I suspect you may have read the same book.

Actually you are wrong. I don't want to be accused of cherry picking data, but because of the volatility in the equity markets, a10% bond/90% stock portfolio will outperform a 100% stock portfolio over most time horizons.

Ghost of Igloi wrote:

I don't want to be accused of cherry picking data...

Made me laugh.

POTO, rather than debating with a groundless accusation, why not debate with a counterpoint? I suppose because you don\'t have one.

I thought my point was obvious. You don't want to be accused of cherry picking data, yet you've done just that repeatedly including tonight. You must be trolling.

Ghost of Igloi wrote:

Actually you are wrong. I don't want to be accused of cherry picking data, but because of the volatility in the equity markets, a10% bond/90% stock portfolio will outperform a 100% stock portfolio over most time horizons.

We can do the calculations publicly.

What data sets do you wish to consider? I would prefer to use indices for which the data is readily available, which represent the broad markets reasonably well, and which go back to 1926 (give or take).

I suppose we will also have to choose a time frame for the holding period. I would suggest 20 years but if you wish to choose 15 or 30 or...that would be fine.

Ghost of Igloi wrote:

Actually you are wrong. I don't want to be accused of cherry picking data, but because of the volatility in the equity markets, a10% bond/90% stock portfolio will outperform a 100% stock portfolio over most time horizons.

Igloi are you confusing absolute returns with risk adjusted returns? I don't see why adding bonds to a portfolio would help absolute returns. It might raise the sharpe ratio tho.

And you are absolutely cherry picking. For the lords sake stop starting your data series in the year 2000.

Bill Gross (Pimco Total Return) outperformed the stock market for much of the last 15 years, but that is because we were in a large consolidation pattern, not because bonds will outperform stocks forever...and the outperformance from PIMCO stopped 2-3 years ago. If you go to Morningstar data, you will see that PTTAX outperformed VFINX for holding periods that started in the 1996-2008 region until present, and not before or after.

Here is more detailed analysis from Blackrock about how much bonds trail stocks long-term:

https://www.blackrock.com/investing/literature/investor-education/asset-class-returns-one-pager-va-us.pdf

Notice also that at no time during the 20 year study did a diversified portfolio outperform...not even during bear markets.

And there is more that Ghost of Igloi has claimed (incorrectly) that should be challenged:

(1) It has been claimed that we areat benchmark level "overvalued" levels with the Shiller PE at 26.

In October, 1996, the SP500 had a Shiller PE of 26. The SP500 was at 700 at the time and the market more than doubled after then to the peak in 2000. In fact, you would have made more money if you had held through the entire bear market than if you sold at that point because it was "overvalued."

The Shiller PE was again at 26 in December 2003. The market went up over 50% after that point.

(2) The regular PE was higher than it is now in January, 1992 and again in January 2010. If you had sold or not bought then because the market was "overvalued", you would have missed two entire bull markets.

One more time....YOU CANNOT PREDICT THE MARKET IN ADVANCE. Just because somebody comes up with some number that says the market is "overvalued", it doesn't mean that it can't get more overvalued and remain so for years.

http://www.multpl.com/table

Think of it this way, since high quality bonds moderate the downdraft in a poor market you compound at a greater rate going forward. I am talking about portfolio construction, also alternative investments do the same thing. See Markowitz, Modern Portfolio Theory. I am not making a comparison saying bonds will outperform stocks; one asset classes versus another as demonstrated by coach d's Blackrock chart. Blackrock is a fine asset manager, but keep in mind they want to sell you stocks all the time. Asset managers make far more money selling stocks than bonds, and of course holding cash. Also, Blackrock is asking regulators to allow fund managers authorization to borrow between funds so they don't have to sell in a down market. If approved it would add the element of leverage to their funds.

Do not bonds also moderate the updraft in a bull market?

coach d,

See my response to agip on portfolio construction and your reference to the Blackrock chart. I would also add, I am accused of cherry picking data, well stocks are going to shine when the data is gathered at a market high.

I am not sure what you mean by a large consolidation pattern. My view is that Federal Reserve policies have led to bouts of speculation with booms and busts as a result. That can be the subject of future debates.

In regard to the overvaluation debate I would refer you to the Office of Financial Research report Quicksilver Markets. In the report the Shiller CAPE 10, Tobin's Q, and the Buffett Indicator are at two standard deviation above the norm. I agree that you cannot identify a market top. Nevertheless, when valuations are stretched your forward return is reduced. A stock is more than a tikker it is representative of a long term sream of income. It is not a lottery ticket to be bought and sold daily. You are welcome to try if you wish. If you pay to much for that stream of income your return is reduced. I would be happy to see you prove otherwise. It matters little if the market moves up another 10% only to fall 50%. You still have wipped out your all of your gain. Feel free to prove how I am wrong.

Are you suggesting that because returns for stocks may be lower, that I should invest elsewhere? Where exactly?

AAT wrote:

Are you suggesting that because returns for stocks may be lower, that I should invest elsewhere? Where exactly?

EXACTLY.

And that is the point.

Real estate, rental property, local business, foreign equity and bond markets, etc.

None are as attractive, compared to the ease of investing in domestic markets.

Really, they have everyone by the balls. We are all invested, deeply, whether we like it or not.

Ghost of Igloi wrote:

Think of it this way, since high quality bonds moderate the downdraft in a poor market you compound at a greater rate going forward...

And you are still wrong.

But I repeat myself.

We can do the calculations publicly.

What data sets do you wish to consider? I would prefer to use indices for which the data is readily available, which represent the broad markets reasonably well, and which go back to 1926 (give or take).

I suppose we will also have to choose a time frame for the holding period. I would suggest 20 years but if you wish to choose 15 or 30 or...that would be fine.