OK. I believe in stock and bond market investing.
Valuations matter and at current levels there is little if any return. Market history and a variety of metrics support that view. The 20 year S&P 500 Index return is annualized at 4%, with reinvested dividends 6%. Adjusted for inflation those figures would each be about 2% lower. Thirty year figures are 2% higher.
These figures include no transaction costs. This snap shot of performance is at a market top. These numbers are far below the 11% expected returns quoted by Wall Street. Using international investments would further dilute returns. Think for a moment how those backward looking numbers would measure up in March 2000 or March 2009. There are numerous studies on how investors get excited at market tops and disinterested at market bottoms. This behavior leads to investment returns far below the market historical average returns.
My comments have always been valuation driven. Value as an investment style underperforms in momentum markets and it has up until recently. Momentum investing delivers wide range of returns great and poor through a full cycle, but generally underperforms value. The S&P 500 closed today below the first trading day of 2018.
Now if you or any other investor that navigates the market successfully is immaterial. It would be impossible to make a rational comment about markets or the economy otherwise. In the end macro economic factors and market valuations will determine the long term outcome for most investors. And based on historically accurate metrics the S&P 500 is about 50-65% overvalued. The Aggregate Bond Index is 10-20% overvalued, high yield bonds about 30-40%. Timing does not matter because the largest percentage of investor returns since 2009 are not durable.
The business of financial services is gathering assets and selling product. There is little incentive for risk management or full cycle investment management. At the same time it is math that tells one risk reduction dramatically improves portfolio performance because it reduces drawndown improving compounding. Sure Betterment, robo-advisors, investment advisors attempt to employ risk reduction but the industry incentives promotes herding behavior and high levels of risk relative to deliverable returns.
My thoughts for what it is worth. I am going to drink a beer.