S&P 500 -- Ten Years Thoughts?

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SmilerUK
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S&P 500 -- Ten Years Thoughts?

Post by SmilerUK » Sat Oct 28, 2017 10:53 am

Hi SatuMedia!

Just wanted to get my thoughts in order.

In the 10 years from 1998 onward, on a $10k investment, the S&P 500 dropped massively and only recovered at the 11th hour, returning a few hundred dollars above investment.

Question:

This return doesn't include accumulation, I don't believe.

Is the S&P 500 still worth it overall?

I see Buffet / Bogle advice recommending it, with a preference to all-market. However these are available hedged in the UK.

Thanks so much for giving me confidence!

~ Kaz

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David Jay
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Re: S&P 500 -- Ten Years Thoughts?

Post by David Jay » Sat Oct 28, 2017 11:14 am

Are you perhaps looking at the SP500 INDEX (not the total return including dividends)?

Morningstar says that from 1/1/1998 to 1/1/2008 that VFINX went from $10,000 to $17,624.

In the last 10 years (as of yesterday) that $10,000 investment grew to $20,636 - more than doubled.
Last edited by David Jay on Sat Oct 28, 2017 11:19 am, edited 1 time in total.
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MrMatt2532
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Re: S&P 500 -- Ten Years Thoughts?

Post by MrMatt2532 » Sat Oct 28, 2017 11:18 am

Anytime you are comparing a peak (~1999) to a trough (~2009) the returns will look worse than the norm. Similarly, if you compare a trough (~2009) to a peak (maybe today?) they will look better than the norm. Ideally, you should be looking at even longer term and not cherrypick the dates to paint a biased picture.

With that said, the SP500 and/or the Total Market is a great investment, however, yes it is possible to have losses even with a 10-year horizon.

JD101
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Re: S&P 500 -- Ten Years Thoughts?

Post by JD101 » Sat Oct 28, 2017 11:38 am

What's the word on investing in S&P 500 Vs Total stock market?

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Taylor Larimore
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Re: S&P 500 -- Ten Years Thoughts?

Post by Taylor Larimore » Sat Oct 28, 2017 11:45 am

JD101 wrote:
Sat Oct 28, 2017 11:38 am
What's the word on investing in S&P 500 Vs Total stock market?
JD101:

I, like most SatuMedia, slightly prefer Vanguard Total Stock Market Index Fund because of its greater diversification.

Both funds are excellent with similar risk, return, and great tax-efficiency.

Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle

JD101
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Re: S&P 500 -- Ten Years Thoughts?

Post by JD101 » Sat Oct 28, 2017 11:48 am

Taylor Larimore wrote:
Sat Oct 28, 2017 11:45 am

Both funds are excellent with similar risk, return, and great tax-efficiency.

Best wishes.
Taylor
If they are similar in risk, return and efficiency why would anyone choose SP500? the added advantage of total stock market is greater diversification.

Valuethinker
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Re: S&P 500 -- Ten Years Thoughts?

Post by Valuethinker » Sat Oct 28, 2017 11:49 am

SmilerUK wrote:
Sat Oct 28, 2017 10:53 am
Hi SatuMedia!

Just wanted to get my thoughts in order.

In the 10 years from 1998 onward, on a $10k investment, the S&P 500 dropped massively and only recovered at the 11th hour, returning a few hundred dollars above investment.

Question:

This return doesn't include accumulation, I don't believe.

Is the S&P 500 still worth it overall?

I see Buffet / Bogle advice recommending it, with a preference to all-market. However these are available hedged in the UK.

Thanks so much for giving me confidence!

~ Kaz
Over periods as long as 10 years, neglecting the Total Return basis can lead to an error on the order of 40% (say 3% dividend yield, compounded).

A US bias is a mistake, but probably not a grievous mistake, for a US based investor.

For a UK based investor, it would be a terrible mistake to be heavily biased against the US market, or in favour of it. Global capitalization weighting is probably best (US c. 55% then).

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Taylor Larimore
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Re: S&P 500 -- Ten Years Thoughts?

Post by Taylor Larimore » Sat Oct 28, 2017 12:03 pm

JD101 wrote:
Sat Oct 28, 2017 11:48 am
Taylor Larimore wrote:
Sat Oct 28, 2017 11:45 am

Both funds are excellent with similar risk, return, and great tax-efficiency.

Best wishes.
Taylor
If they are similar in risk, return and efficiency why would anyone choose SP500? the added advantage of total stock market is greater diversification.
JD101:

Most 401k plans include a low-cost S&P 500 Index fund but not the lesser known Total Stock Market Index Fund. Lack of knowledge may be another reason.

Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle

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Earl Lemongrab
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Re: S&P 500 -- Ten Years Thoughts?

Post by Earl Lemongrab » Sat Oct 28, 2017 12:47 pm

JD101 wrote:
Sat Oct 28, 2017 11:38 am
What's the word on investing in S&P 500 Vs Total stock market?
I don't have any Total, but I do have a lot of S&P 500. That's because I have a slice-and-dice portfolio with separate allocations to large blend and small blend (among others). I prefer to have somewhat more "pure" selections. If I used say VTI then that brings a fair amount of small cap into the LC asset allocation. So then you either need to ignore that or try to account for it in the SC allocation. To me that's a complication with no value. I have used other LC funds in the past, including MGC (VG megacap) and VV (VG large). However, the S&P 500 is readily available from various vendors and is a convenient option.
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Re: S&P 500 -- Ten Years Thoughts?

Post by arcticpineapplecorp. » Sat Oct 28, 2017 4:36 pm

SmilerUK wrote:
Sat Oct 28, 2017 10:53 am
Hi SatuMedia!

Just wanted to get my thoughts in order.

In the 10 years from 1998 onward, on a $10k investment, the S&P 500 dropped massively and only recovered at the 11th hour, returning a few hundred dollars above investment.

Question:

This return doesn't include accumulation, I don't believe.

Is the S&P 500 still worth it overall?

I see Buffet / Bogle advice recommending it, with a preference to all-market. However these are available hedged in the UK.

Thanks so much for giving me confidence!

~ Kaz
This partly has to do with what you call "10 years". You might be thinking 1998-2008, but that's not 10 years. That's 11. Count again. "10 years from 1998 onward" actually ends 12/31/2007. So David Jay was right. But you might want to see the actual picture for yourself. Well, here it is and I used both total stock market index fund (in blue below) AND the S&P500 index fund (in orange below). Sure enough from 1/1/2008 - 12/31/2007 which is 10 years, you would have ended up with an 84.25% rate of return overall for the total stock market and a 77.20% return for the S&P500 index fund over those 10 years (start with $10,000 and end with $18,425.75 (TSM) and $17,720.17 (S&P500). source: http://quotes.morningstar.com/chart/fun ... A%5B%5D%7D

Image

But maybe you're thinking, what happened from 1998 through 2008 (again, 11 years and a bit arbitrary...I always wonder how and why people come up with some of the dates they do...but let's go with it). What would the return have been over those years? 16.10% for the total stock market and 11.69% for the S&P500 index. Not really a few hundred dollars above investment...well really that depends on how much was invested doesn't it? In this example (morningstar uses $10,000 as a default starting invesment) you were UP $1610 or $1169 (TSM and S&P500, respectively). If you invested $100,000 you would have been UP $16,100 or $11,690 respectively and so on. So to ONLY be up a few hundred dollars would have meant you'd ONLY invested $1,000 to begin with. Are we really concerned about what happens (good or bad) to a $1000 investment?? I really think it'll take more than that to retire on. But do understand the subtle differences I'm trying to point out here.

source: http://quotes.morningstar.com/chart/fun ... A%5B%5D%7D

Image

Finally, another point worth mentioning (and I alluded to it prior) is the curious cherry picking of dates you used. If you want to start at 1998 then fine, but why end after 10 years (or 11 in your original example)? Do people only invest for 10 years? Maybe those that start investing in their 50s and then retire in their 60s, but for many folks they start investing in their 20s, 30s or 40s, which would yield different returns than just 10 year returns. So if you want to start in 1998, fine, but how would you have done from 1998 to present (which is about 20 years, ending 2017):

Image

source: http://quotes.morningstar.com/chart/fun ... A%5B%5D%7D

yep, you would be up 309.19% for the total stock market and 284.89% for the S&P500 index fund. Not too shabby. Would have turned $10,000 into $40,919.00 in the TSM and $38,489.32 in the S&P500 index. Basically quadrupled your investment.Take that to the bank. By the way, if you use morningstar as I have here, make sure you have the chart set to "growth" which includes the reinvesment of dividends. As you already now know, returns can look very different if you DON'T include dividends received and reinvested (can look much worse than they really were).
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metrunt
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Re: S&P 500 -- Ten Years Thoughts?

Post by metrunt » Sat Oct 28, 2017 4:44 pm

Valuethinker wrote:
Sat Oct 28, 2017 11:49 am
For a UK based investor, it would be a terrible mistake to be heavily biased against the US market, or in favour of it. Global capitalization weighting is probably best (US c. 55% then).
I'd like to hear more about this. Why is the investing strategy of a UK based investor different than a US one? I suppose taxes are a part of it, but I don't think that's what you're talking about, is it?

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Re: S&P 500 -- Ten Years Thoughts?

Post by ruralavalon » Sat Oct 28, 2017 5:06 pm

JD101 wrote:
Sat Oct 28, 2017 11:38 am
What's the word on investing in S&P 500 Vs Total stock market?
I prefer a total stock market index fund where available, otherwise a S&P 500 index fund is good enough for a U.S. stock fund in my opinion. In the 25 years since the creation of the first total stock market index fund in 1992, the performance (total return) of the two types of fund has been almost identical.

Why pick any 10 year period to study?

At most fund firms the expense ratios for the two types of fund are identical.
Last edited by ruralavalon on Sat Oct 28, 2017 5:12 pm, edited 1 time in total.
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Valuethinker
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Re: S&P 500 -- Ten Years Thoughts?

Post by Valuethinker » Sat Oct 28, 2017 5:12 pm

metrunt wrote:
Sat Oct 28, 2017 4:44 pm
Valuethinker wrote:
Sat Oct 28, 2017 11:49 am
For a UK based investor, it would be a terrible mistake to be heavily biased against the US market, or in favour of it. Global capitalization weighting is probably best (US c. 55% then).
I'd like to hear more about this. Why is the investing strategy of a UK based investor different than a US one? I suppose taxes are a part of it, but I don't think that's what you're talking about, is it?
UK investor would be losing 55 per cent of world market including most of its major tech stocks. Seriously reducing portfolio diversification.

UK is only 9 per cent developed world markets last I checked.

Usa investor indexed to own market is losing a relatively small international diversification bonus given their market is 55 per cent of the world. It is under represented in non energy raw materials stocks ie mining but otherwise fairly diversified.

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Re: S&P 500 -- Ten Years Thoughts?

Post by Johm221122 » Sat Oct 28, 2017 6:53 pm

JD101 wrote:
Sat Oct 28, 2017 11:48 am
Taylor Larimore wrote:
Sat Oct 28, 2017 11:45 am

Both funds are excellent with similar risk, return, and great tax-efficiency.

Best wishes.
Taylor
If they are similar in risk, return and efficiency why would anyone choose SP500? the added advantage of total stock market is greater diversification.
Because my 401 doesn't offer total market fund but I use extended market to fill void

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ram
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Re: S&P 500 -- Ten Years Thoughts?

Post by ram » Sat Oct 28, 2017 8:06 pm

JD101 wrote:
Sat Oct 28, 2017 11:48 am
Taylor Larimore wrote:
Sat Oct 28, 2017 11:45 am

Both funds are excellent with similar risk, return, and great tax-efficiency.

Best wishes.
Taylor
If they are similar in risk, return and efficiency why would anyone choose SP500? the added advantage of total stock market is greater diversification.
Like Taylor said I slightly prefer the 'Total Market' but I use S&P 500 index as a tax loss harvesting partner.
Ram

TheNightsToCome
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Re: S&P 500 -- Ten Years Thoughts?

Post by TheNightsToCome » Sat Oct 28, 2017 8:33 pm

SmilerUK wrote:
Sat Oct 28, 2017 10:53 am
Hi SatuMedia!

Just wanted to get my thoughts in order.

In the 10 years from 1998 onward, on a $10k investment, the S&P 500 dropped massively and only recovered at the 11th hour, returning a few hundred dollars above investment.

Question:

This return doesn't include accumulation, I don't believe.

Is the S&P 500 still worth it overall?

I see Buffet / Bogle advice recommending it, with a preference to all-market. However these are available hedged in the UK.

Thanks so much for giving me confidence!

~ Kaz
From Shiller's Irrational Exuberance (first edition, pp. 9-10), the 5-, 10-, 15-, and 20-year total real returns following 1901, 1929, and 1966 were:

1901: 3.4%, 4.4%, 3.1%, -0.2% (PE10 25.2)
1929: -13.1%, -1.4%, -0.5%, 0.4% (PE10 32.6)
1966: -2.6%, -1.8%, -0.5%, 1.9% (PE10 24.1)

From dqydj.com:

2000: -4.564%, -2.794%, 2.192%, TBD (PE10 43.8)

The 2000 figures are annualized total real returns from March, 2000 through March, 2005, 2010, and 2015.
https://dqydj.com/sp-500-return-calculator/

The PE10 today is about 31.21, almost as high as 1929 and much higher than 1901 or 1966.

There is an inverse relationship between future returns and starting valuations, albeit with a fairly wide range in outcomes. The valuation is very high now.

"Is the S&P 500 still worth it overall?"

The alternatives aren't stellar but many foreign equity markets will probably deliver better returns. 30-year TIPS won't provide much (0.95% real yield), but given the relative risks I'd prefer TIPS to the S&P 500.

WanderingDoc
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Re: S&P 500 -- Ten Years Thoughts?

Post by WanderingDoc » Sat Oct 28, 2017 11:28 pm

SmilerUK wrote:
Sat Oct 28, 2017 10:53 am
Hi SatuMedia!

Just wanted to get my thoughts in order.

In the 10 years from 1998 onward, on a $10k investment, the S&P 500 dropped massively and only recovered at the 11th hour, returning a few hundred dollars above investment.

Question:

This return doesn't include accumulation, I don't believe.

Is the S&P 500 still worth it overall?

I see Buffet / Bogle advice recommending it, with a preference to all-market. However these are available hedged in the UK.

Thanks so much for giving me confidence!

~ Kaz
In my opinion, no it isn't. You won't hear that on this forum though.

My ~$200K invested in real estate, has resulted in $700K of real estate equity, controlling $1.5M in real estate, and a $40K/annum. of net income covering my basic living expenses. And not in 10 years - in 4 years.

For someone that plans on working full time for 30-40 years in a job they may or may not be in love with (nothing wrong with that), and they simply don't have the knowledge or confidence to exploit one of the other investment vehicles out there, then indexing may be a viable option or worth it. This of course depends on one's definition of "worth it". :D
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Re: S&P 500 -- Ten Years Thoughts?

Post by JBTX » Sun Oct 29, 2017 12:24 am

TheNightsToCome wrote:
Sat Oct 28, 2017 8:33 pm
SmilerUK wrote:
Sat Oct 28, 2017 10:53 am
Hi SatuMedia!

Just wanted to get my thoughts in order.

In the 10 years from 1998 onward, on a $10k investment, the S&P 500 dropped massively and only recovered at the 11th hour, returning a few hundred dollars above investment.

Question:

This return doesn't include accumulation, I don't believe.

Is the S&P 500 still worth it overall?

I see Buffet / Bogle advice recommending it, with a preference to all-market. However these are available hedged in the UK.

Thanks so much for giving me confidence!

~ Kaz
From Shiller's Irrational Exuberance (first edition, pp. 9-10), the 5-, 10-, 15-, and 20-year total real returns following 1901, 1929, and 1966 were:

1901: 3.4%, 4.4%, 3.1%, -0.2% (PE10 25.2)
1929: -13.1%, -1.4%, -0.5%, 0.4% (PE10 32.6)
1966: -2.6%, -1.8%, -0.5%, 1.9% (PE10 24.1)

From dqydj.com:

2000: -4.564%, -2.794%, 2.192%, TBD (PE10 43.8)

The 2000 figures are annualized total real returns from March, 2000 through March, 2005, 2010, and 2015.
https://dqydj.com/sp-500-return-calculator/

The PE10 today is about 31.21, almost as high as 1929 and much higher than 1901 or 1966.

There is an inverse relationship between future returns and starting valuations, albeit with a fairly wide range in outcomes. The valuation is very high now.

"Is the S&P 500 still worth it overall?"

The alternatives aren't stellar but many foreign equity markets will probably deliver better returns. 30-year TIPS won't provide much (0.95% real yield), but given the relative risks I'd prefer TIPS to the S&P 500.
I come closer to this. I certainly think you should own the stocks in the S&P 500 but given the valuations I don’t agree with those that would make that 80-90 % of their equity portfolio. I’d prefer having some small stocks, international and emerging markets. However I wouldn’t say I prefer tips to sp500. That’s kind of apples and oranges.

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TD2626
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Re: S&P 500 -- Ten Years Thoughts?

Post by TD2626 » Sun Oct 29, 2017 1:04 am

Taylor Larimore wrote:
Sat Oct 28, 2017 12:03 pm
JD101 wrote:
Sat Oct 28, 2017 11:48 am
Taylor Larimore wrote:
Sat Oct 28, 2017 11:45 am

Both funds are excellent with similar risk, return, and great tax-efficiency.

Best wishes.
Taylor
If they are similar in risk, return and efficiency why would anyone choose SP500? the added advantage of total stock market is greater diversification.
JD101:

Most 401k plans include a low-cost S&P 500 Index fund but not the lesser known Total Stock Market Index Fund. Lack of knowledge may be another reason.

Best wishes.
Taylor
The S&P 500 fund is somewhat older and has a longer history. It was later on in the history of passive investing that Total Market funds were created.

Some people may prefer the S&P 500 fund because it's in the news more and tracks a more well-known index than Total Market funds. (I don't feel this is a good reason to choose one over the other).

Some people may feel that the S&P 500 fund may be a less-reward-for-less-risk fund, since it doesn't include the small cap segment (which is thought to be higher-risk-higher-reward).

However, the Total Market fund is in the Three Fund portfolio because of its better diversification. It is used in what are arguably Vanguard's de facto default investments - Target Date funds and Life Strategy funds. The S&P 500 fund is somewhat of an anachronisim in my opinion. The 401k reason, though, is probably a big one why people choose the S&P 500 fund.

There are theoretical reasons to lean toward total market cap weighting. For example, some professional traders could try to "front run" additions to the S&P 500, driving up share prices of new additions to the index just as S&P 500 index funds get ready to buy. With a Total Market fund that tracks nearly every investable public company in the US, front running is less of a consideration. More diversification through sub-unity correlations between large and small caps are a point in TSM's favor. Further, although it is hotly debated, Fama-French theory, as well as very long term historical data, suggests that small caps may outperform large caps (likely in exchange for higher risk) and due to this, some SatuMedia overweight small caps. Whatever one's views on factor tilts are, it's worth noting that the debates are usually between cap weighting and slightly overweighting small caps - few suggest cutting out small caps entirely!

Despite the fact that indexers, especially at Vanguard, are often focused on Total Market funds, it seems like non-Boglehead critics of passive investing sometimes still think that the S&P 500 is the go-to option. It is always amusing to read an article from a critic of indexing that boldly claims that indexing is bad and proceeds to focus primarily on issues that are far more applicable to the S&P 500 than to Total Stock (e.g. front running, the "the index is 500 stocks selected by a committee" criticism, etc).
Taylor Larimore wrote:
Sat Oct 28, 2017 11:45 am
I, like most SatuMedia, slightly prefer Vanguard Total Stock Market Index Fund because of its greater diversification.
I think Taylor's emphasis on the word slightly sums it up well. There really isnt' that much of a difference due to large overlap. There are a lot of other decisions that are more important, like savings rate and stock vs bond asset allocation. Spending a lot of time figuring out using a S&P 500 fund versus a Total Stock fund may be time better spent elsewhere - for example, figuring out how to save an extra $100 a month would probably have a much bigger impact on the portfolio.

Also - the OP's title says "Ten Years". I don't really give much consideration to short-term movements in the markets. Ten years is in my opinion too short of a time scale. An investor who buys a stock fund in their early 20s and stays invested at least partly in stocks until their 90s has a 70+ year time horizon. If their heirs inherit the stocks, the time horizon could easily be 100+ years. From this truly long-term perspective, what difference does it make what the performance is over 10 or 20 year timespans?

These are simply my opinions and feelings and some may disagree. No one should invest beyond their willingness, ability, and need to take risk. Stocks are risky over both long and short horizons, but long-horizon investors generally need at least some for inflation adjusted growth.

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Re: S&P 500 -- Ten Years Thoughts?

Post by tennisplyr » Sun Oct 29, 2017 7:55 am

Retired, midsixties.....if it weren't for market investing, I'd still be working!
Those who move forward with a happy spirit will find that things always work out.

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Re: S&P 500 -- Ten Years Thoughts?

Post by TheTimeLord » Sun Oct 29, 2017 8:01 am

JD101 wrote:
Sat Oct 28, 2017 11:48 am
Taylor Larimore wrote:
Sat Oct 28, 2017 11:45 am

Both funds are excellent with similar risk, return, and great tax-efficiency.

Best wishes.
Taylor
If they are similar in risk, return and efficiency why would anyone choose SP500? the added advantage of total stock market is greater diversification.
I would suggest that the Total Market is not more diversified because of the relative lack of foreign exposure in small caps versus large multi-nationals and that the slight advantage that the Total Market has had from the 10%-15% of it that is non-S&P 500 stocks is their inherent bias towards correlating to the U.S. economy instead of the world economy.

You could read into this Bogle recommends S&P 500 and not International because the diversification found in the S&P 500 versus the Total Market makes International unnecessary.
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Re: S&P 500 -- Ten Years Thoughts?

Post by Peculiar_Investor » Sun Oct 29, 2017 8:23 am

SmilerUK wrote:
Sat Oct 28, 2017 10:53 am
Is the S&P 500 still worth it overall?

I see Buffet / Bogle advice recommending it, with a preference to all-market. However these are available hedged in the UK.
That's the US centric home country bias coming into play IMHO. Others have mentioned it above and given some thoughts on it. As a Canadian investor, this subject comes up often as well as Canada represents about 4% of global equity market cap.

I cannot directly answer you question other than I highly recommend you read Vanguard's paper, The role of home bias in global asset allocation decisions as it looks at the question from the perspective of four different countries.
Vanguard wrote:This paper asks the question, “In a world in which a portfolio’s diversification benefits from broad allocations to global securities, how much home bias is reasonable?” We explore home bias in four developed markets: the United States, the United Kingdom, Australia, and Canada. To address our governing question, we outline a decision framework that considers both quantitative and qualitative criteria. Based on these criteria, we conclude that, in general, U.S. investors may have some justification for marginal home bias, but
investors in Australia and Canada might consider increasing their allocations to foreign securities. The results for U.K. investors are mixed, with less overall concentration in domestic securities but still room to diversify. Of course, because each investor’s objectives and constraints are unique, no single answer is correct for all countries and investors.
From my viewpoint living outside the US, but heavily influenced by US media and investing information, as the biggest equity market (~50% of the global market) and many major multi-nationals, most US investors take a very myopic point of view that considers the US market as representative the the global equity market. Here's what I wrote on another topic, but I think applies here:
Peculiar_Investor wrote:
Sat Oct 31, 2015 9:58 am
Does Bogle's advice about international equity exposure hold for non-US resident SatuMedia? If not, why not? If you believe in the underlying theory of indexing, that you don't know in advance with companies/managers with outperform, so it is better to own them all via a broadly based index based on market capitalization and accept market returns, why stop at your home country's border?

In the underlying theory I don't see any mention of geographic boundaries. I'll suggest that home country bias makes it somewhat implied, particularly since the US market is approximately 50% of the global market cap.

Maybe it is the fact that I'm Canadian, and the Canadian share of global equity market cap is under 5%. Another strike against the Canadian market is our market and therefore supposed "broad-based" indices are not very diverse, they are about 70% concentrated in just three sectors (finance, energy and materials). I'd be crazy to invest without international (which includes the US in my case) exposure.

Anyways, that's my quibble with Bogle's and Buffett's viewpoint on lack of international exposure, it doesn't travel well if you try and apply it outside the US.
Bottom line to the OP, I strongly recommend reading and digesting the Vanguard paper I linked rather than relying on "sound bites" from Buffett/Bogle. I'm not saying Buffett/Bogle are wrong, I'm just questioning application of their words for those that don't live in the US.
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Re: S&P 500 -- Ten Years Thoughts?

Post by ruralavalon » Sun Oct 29, 2017 9:07 am

Peculiar_Investor wrote:
Sun Oct 29, 2017 8:23 am
. . . . .
That's the US centric home country bias coming into play IMHO. Others have mentioned it above and given some thoughts on it. As a Canadian investor, this subject comes up often as well as Canada represents about 4% of global equity market cap.

I cannot directly answer you question other than I highly recommend you read Vanguard's paper, The role of home bias in global asset allocation decisions as it looks at the question from the perspective of four different countries.
Vanguard wrote:This paper asks the question, “In a world in which a portfolio’s diversification benefits from broad allocations to global securities, how much home bias is reasonable?” We explore home bias in four developed markets: the United States, the United Kingdom, Australia, and Canada. To address our governing question, we outline a decision framework that considers both quantitative and qualitative criteria. Based on these criteria, we conclude that, in general, U.S. investors may have some justification for marginal home bias, but
investors in Australia and Canada might consider increasing their allocations to foreign securities. The results for U.K. investors are mixed, with less overall concentration in domestic securities but still room to diversify. Of course, because each investor’s objectives and constraints are unique, no single answer is correct for all countries and investors.
From my viewpoint living outside the US, but heavily influenced by US media and investing information, as the biggest equity market (~50% of the global market) and many major multi-nationals, most US investors take a very myopic point of view that considers the US market as representative the the global equity market.
. . . . .

Bottom line to the OP, I strongly recommend reading and digesting the Vanguard paper I linked rather than relying on "sound bites" from Buffett/Bogle. I'm not saying Buffett/Bogle are wrong, I'm just questioning application of their words for those that don't live in the US.
Thank you very much for the link, it's been quite awhile since I last read the paper on home country bias. (I wish they wouldn't use the term "bias" for this, it seems to me that using the label "bias" presupposes that extra weight in home country is wrong.)

It really does matter what country's market you are are discussing, and the time frame involved also matters.

In my opinion no one should be very doctrinaire about conclusions drawn. There is always the likelihood that the next 23 years might be different. I am a U.S. investor. As I read Figure 1, p. 3, the efficient frontier (better risk/reward mix) for a U.S. investor in the 23 year period 1988-2011 was around 80% U.S. equities and 20% non-U.S. equities.

I also encourage OP to read and digest that paper and others from Vanguard, and not just quickly scan the conclusion or executive summary.
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Re: S&P 500 -- Ten Years Thoughts?

Post by mptfan » Sun Oct 29, 2017 9:27 am

SmilerUK wrote:
Sat Oct 28, 2017 10:53 am
In the 10 years from 1998 onward, on a $10k investment, the S&P 500 dropped massively and only recovered at the 11th hour, returning a few hundred dollars above investment.
You are making a very common mistake...you are looking at a price chart and ignoring dividends, so you are not seeing the total return.
I eat risk for breakfast. :)

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Re: S&P 500 -- Ten Years Thoughts?

Post by TheTimeLord » Sun Oct 29, 2017 9:57 am

Peculiar_Investor wrote:
Sun Oct 29, 2017 8:23 am
SmilerUK wrote:
Sat Oct 28, 2017 10:53 am
Is the S&P 500 still worth it overall?

I see Buffet / Bogle advice recommending it, with a preference to all-market. However these are available hedged in the UK.
That's the US centric home country bias coming into play IMHO.
You have to consider that the U.S. economy has been the world's leading economy for decades and still has the world's most stable and best regulated markets. Given that is it the obvious choice to base investments until that status changes significantly. Attributing this to Home Country Bias is imho to only take a surface view of the recommendation.
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Re: S&P 500 -- Ten Years Thoughts?

Post by ruralavalon » Sun Oct 29, 2017 11:07 am

mptfan wrote:
Sun Oct 29, 2017 9:27 am
SmilerUK wrote:
Sat Oct 28, 2017 10:53 am
In the 10 years from 1998 onward, on a $10k investment, the S&P 500 dropped massively and only recovered at the 11th hour, returning a few hundred dollars above investment.
You are making a very common mistake...you are looking at a price chart and ignoring dividends, so you are not seeing the total return.
Also the 10 years 1998-2008 is from a U.S. stock market high to a U.S. stock market low, which is not a reasonable time frame to evaluate a S&P 500 index fund for its possible long-term performance
Last edited by ruralavalon on Sun Oct 29, 2017 11:18 am, edited 1 time in total.
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Re: S&P 500 -- Ten Years Thoughts?

Post by The Wizard » Sun Oct 29, 2017 11:16 am

JD101 wrote:
Sat Oct 28, 2017 11:48 am
Taylor Larimore wrote:
Sat Oct 28, 2017 11:45 am

Both funds are excellent with similar risk, return, and great tax-efficiency.

Best wishes.
Taylor
If they are similar in risk, return and efficiency why would anyone choose SP500? the added advantage of total stock market is greater diversification.
They make a good TLH pair...
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Re: S&P 500 -- Ten Years Thoughts?

Post by Peculiar_Investor » Sun Oct 29, 2017 11:20 am

TheTimeLord wrote:
Sun Oct 29, 2017 9:57 am
Peculiar_Investor wrote:
Sun Oct 29, 2017 8:23 am
SmilerUK wrote:
Sat Oct 28, 2017 10:53 am
Is the S&P 500 still worth it overall?

I see Buffet / Bogle advice recommending it, with a preference to all-market. However these are available hedged in the UK.
That's the US centric home country bias coming into play IMHO.
You have to consider that the U.S. economy has been the world's leading economy for decades and still has the world's most stable and best regulated markets. Given that is it the obvious choice to base investments until that status changes significantly. Attributing this to Home Country Bias is imho to only take a surface view of the recommendation.
I would mostly agree with your viewpoint of the U.S. economy.

My quibble is the statement "obvious choice to base investments until that status changes significantly." is home country bias of a U.S. based investor, and it may not travel well for investors based in other countries, such as myself in Canada and the OP in the UK. That's why I linked the Vanguard paper, it provides a framework to look at this from the point of view of other countries.
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Re: S&P 500 -- Ten Years Thoughts?

Post by TheTimeLord » Sun Oct 29, 2017 11:25 am

Peculiar_Investor wrote:
Sun Oct 29, 2017 11:20 am
TheTimeLord wrote:
Sun Oct 29, 2017 9:57 am
Peculiar_Investor wrote:
Sun Oct 29, 2017 8:23 am
SmilerUK wrote:
Sat Oct 28, 2017 10:53 am
Is the S&P 500 still worth it overall?

I see Buffet / Bogle advice recommending it, with a preference to all-market. However these are available hedged in the UK.
That's the US centric home country bias coming into play IMHO.
You have to consider that the U.S. economy has been the world's leading economy for decades and still has the world's most stable and best regulated markets. Given that is it the obvious choice to base investments until that status changes significantly. Attributing this to Home Country Bias is imho to only take a surface view of the recommendation.
I would mostly agree with your viewpoint of the U.S. economy.

My quibble is the statement "obvious choice to base investments until that status changes significantly." is home country bias of a U.S. based investor, and it may not travel well for investors based in other countries, such as myself in Canada and the OP in the UK. That's why I linked the Vanguard paper, it provides a framework to look at this from the point of view of other countries.
I guess what I am suggesting is regardless of your home country (barring tax reasons) you should likely look to based the majority of your investments in the indices of major economies with well regulated markets. I really have no opinion on if you should currency hedge them or not since I am an American investor.
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Re: S&P 500 -- Ten Years Thoughts?

Post by ruralavalon » Sun Oct 29, 2017 11:34 am

The Wizard wrote:
Sun Oct 29, 2017 11:16 am
JD101 wrote:
Sat Oct 28, 2017 11:48 am
Taylor Larimore wrote:
Sat Oct 28, 2017 11:45 am

Both funds are excellent with similar risk, return, and great tax-efficiency.

Best wishes.
Taylor
If they are similar in risk, return and efficiency why would anyone choose SP500? the added advantage of total stock market is greater diversification.
They make a good TLH pair...
There are two more good reasons.

1) Many 401ks do not offer a total stock market index fund, but more often do offer a S&P 500 index fund. The S&P 590 index fund is the best choice actually available to the investor.

I had a poor quality 401k, the S&P 500 index fund was the only decent fund offered, so I used that fund. Now in my rollover IRA I use a total stock market index fund.

2) The first S&P 500 index fund was created about 20 years before the first total stock market index fund. Investors who hold the S&P 500 index fund in a taxable account will have accumulated enormous capital gains. It makes no sense to incur a large income tax liability by switching to a total stock market index fund just to get slightly better diversification.

I had a S&P 500 index fund in our joint taxable account, and didn't switch.

That's why many people just use a S&P 500 index fund.
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Re: S&P 500 -- Ten Years Thoughts?

Post by SmilerUK » Mon Oct 30, 2017 12:33 pm

Wow. You guys really know how to put my brain cells into overdrive.

Personally, I'm a UK investor, and Vanguard don't offer any hedged investments in the US market.

So I'll probably *have* to go with an S&P 500 hedged ETF rather than an all-market fund. I wish I had the choice of an all-market hedged, but I don't.

I wonder, in my darkest hours, whether Vanguard with its heavy US offerings, will fall foul of currency issues in countries like the UK?

Here are some quick back-of-cigarette-packet calculations I did.

I invest £1m into US stocks. I'm effectively buying stocks at 1.21 GBP:USD. (The core price is in GBP, but it affects what is being purchased.)

Within 10 years, GBP/USD goes back to where it was ten years ago. That's 2.08 GBP:USD.

Presuming 6% market return, and 3% inflation, that's £1.34m in 10 years.

But then the built-in currency loss over that time (ie, the effective reduction in value on the shares themselves) equals about £480k.

That's a loss already. Then add capital gains for the £0.34m gain and you're unhappy to the tune of £500k or so.

Your investment halved, due to the primary cause of currency loss, inflation and Capital Gains.

My stats may be a little misaligned here!

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Re: S&P 500 -- Ten Years Thoughts?

Post by TedSwippet » Mon Oct 30, 2017 1:38 pm

SmilerUK wrote:
Mon Oct 30, 2017 12:33 pm
But then the built-in currency loss over that time (ie, the effective reduction in value on the shares themselves) equals about £480k.
Maybe I'm missing something here, but your maths looks a bit off to me. Perhaps you have double-counted the forex loss?

Suppose you buy £1mm at 1.21 USD/GBP. This gives you a $1.21mm holding. 1.09 ^ 10 = 2.37, so under your 6%+3% assumptions your fund increases through compounding to $2.86mm in a decade. Convert that back to GBP at 2.08 USD/GBP produces £1.37mm. So you gained £370k. At worst you might pay £74k in capital gains tax on that, but you still come out £296k ahead.

The forex shift has indeed cost you dearly here relative to a direct USD investor, but not enough to make this a GBP loss.

[ It is however quite possible that you could be left sitting on a GBP loss in real terms -- that is, after inflation -- due to having to pay UK capital gains tax on both real and inflationary gain. But this is more a feature of the tax system than it is an artefact of shifting forex rates. ]

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Re: S&P 500 -- Ten Years Thoughts?

Post by SmilerUK » Tue Oct 31, 2017 5:28 am

Thank you, @TedSwippet! You very well may be right :-)

Here's how I calculated it.

£1m @ 1.21, invested over 10 years, presuming 6% market return = $1.67m.
Then cashed out in GBP 2.08 = £802,884.

3% inflation on the original £1m would equal £737k in a decade.
So that's £263k "real" loss.

Therefore, isn't that a real loss of £200k and an inflation-adjusted loss of £465k?

I really hope my calculations ARE wrong, to save me from a dire pit of self-created worry! :-D

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Re: S&P 500 -- Ten Years Thoughts?

Post by David Scubadiver » Tue Oct 31, 2017 6:02 am

It also makes an excellent tax loss harvesting partner to the total market in the event you buy before a dip.

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Re: S&P 500 -- Ten Years Thoughts?

Post by TedSwippet » Tue Oct 31, 2017 2:06 pm

SmilerUK wrote:
Tue Oct 31, 2017 5:28 am
£1m @ 1.21, invested over 10 years, presuming 6% market return = $1.67m.
$1.21mm * 1.06 ^ 10 is $2.17mm. I don't know how you arrived at $1.67mm here. The formula for compound interest is P(1+R)^N, where P is principal, R is return rate, N is the number of years, and ^ is exponentiation.

In addition to the odd-looking maths, 6% is arguably a number that is too low if we're talking here about non-inflation adjusted return. While nobody knows what stocks will actually return in future, projecting 6% real growth plus 3% inflationary growth would be more conventional, as these are the long-term past averages.

On your figures, you have projected just 3% real return. That is, the 6% you (ab?)used above less the 3% inflation you remove later on.

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Re: S&P 500 -- Ten Years Thoughts?

Post by Dottie57 » Tue Oct 31, 2017 2:15 pm

JD101 wrote:
Sat Oct 28, 2017 11:48 am
Taylor Larimore wrote:
Sat Oct 28, 2017 11:45 am

Both funds are excellent with similar risk, return, and great tax-efficiency.

Best wishes.
Taylor
If they are similar in risk, return and efficiency why would anyone choose SP500? the added advantage of total stock market is greater diversification.

Many of us have only S&P500 in 401k and not total stock. I emulate total market with S&P500, Small Cap and Mid Cap. Best I can do because it is controlled by Employer.

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Re: S&P 500 -- Ten Years Thoughts?

Post by ThrustVectoring » Tue Oct 31, 2017 3:41 pm

JD101 wrote:
Sat Oct 28, 2017 11:48 am
Taylor Larimore wrote:
Sat Oct 28, 2017 11:45 am

Both funds are excellent with similar risk, return, and great tax-efficiency.

Best wishes.
Taylor
If they are similar in risk, return and efficiency why would anyone choose SP500? the added advantage of total stock market is greater diversification.
Adding on to what others are saying: the S&P 500 has the most traded options market out of all the indexes. Plus there's financial products tied to the S&P 500 (eg, indexed annuities), but that likely only matters if you're an institutional investor providing those products. The options market likely doesn't matter that much for retail investors, either, and if you're buying options it's close enough that the only advantage is that your broker will consider some strategies a "covered call".

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Re: S&P 500 -- Ten Years Thoughts?

Post by SmilerUK » Tue Oct 31, 2017 8:55 pm

@TedSwippet -- you're a genius.

Firstly, you're right. My maths was wrong. I was calculating this on the GBP amount. D'OH! Sorry about that.

More importantly, however, is the 6% vs 3%.

Is it right therefore to say that, historically, the 6% rate *already incorporates* inflation?

If so, I've been calculating EVERYTHING wrong. I've been presuming 6% average market rate (based on all the Bogle teachings), but then taken into account 3% inflation. Net = 3% increase.

If the increase is actually an average of 6%, then I am going to be a very happy man indeed.

Is this right? I'll be very happy if I've misunderstood everything so far :-)

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Re: S&P 500 -- Ten Years Thoughts?

Post by TedSwippet » Wed Nov 01, 2017 3:56 am

SmilerUK wrote:
Tue Oct 31, 2017 8:55 pm
Is it right therefore to say that, historically, the 6% rate *already incorporates* inflation?
In a manner of speaking, yes. More accurately, that 6% expresses your future fund balance in current-value dollars. Articles that talk about this usually state whether numbers are inflation adjusted or not. For example, Investopedia:
When we look at the entire period between 1928 and 2011, we find that stocks appreciated by a compound average rate of 9.3% a year.
and Jeremy Siegel:
Stocks on the long term have returned 6.8% per year after inflation ...
The difference here, 2.5%, is the inflation part. So you can project your fund forwards using 9.3% if you want to estimate its nominal value some years from now, or at 6.8% if you want to estimate its real (inflation-adjusted) growth.

But this isn't the whole story either. Predictions are that stock returns will be lower over the next ten years than this long run average, perhaps as much as 5% lower. So there's that. And ten years isn't actually that long in stock market terms. And your use of worst-case (so far!) USD/GBP forex swings might turn out to be either pessimistic or optimistic. And forex rates are even more unpredictable than market returns. And inflation might roar. And so on. It is nearly true to say that you could get almost any projection outcome while still using believable estimates for all of these projection inputs.

And yet, this is all we have to go on. All part of why investing ultimately requires a leap of faith.
SmilerUK wrote:
Tue Oct 31, 2017 8:55 pm
I'll be very happy if I've misunderstood everything so far.
You haven't misunderstood everything. There's nothing wrong at all in considering how forex and your choice of investment might interact to provide less than useful results. It's just that the numbers you used in your projections were probably (although not definitely!) wide of the mark, and you slipped a detail or two when doing the actual calculation.

Maybe set up a small spreadsheet that does this for you, then play with different estimates for stock returns, inflation, forex and so on. That should help show you the range of outcomes that you might expect.

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Re: S&P 500 -- Ten Years Thoughts?

Post by unclescrooge » Wed Nov 01, 2017 4:52 am

WanderingDoc wrote:
Sat Oct 28, 2017 11:28 pm
SmilerUK wrote:
Sat Oct 28, 2017 10:53 am
Hi SatuMedia!

Just wanted to get my thoughts in order.

In the 10 years from 1998 onward, on a $10k investment, the S&P 500 dropped massively and only recovered at the 11th hour, returning a few hundred dollars above investment.

Question:

This return doesn't include accumulation, I don't believe.

Is the S&P 500 still worth it overall?

I see Buffet / Bogle advice recommending it, with a preference to all-market. However these are available hedged in the UK.

Thanks so much for giving me confidence!

~ Kaz
In my opinion, no it isn't. You won't hear that on this forum though.

My ~$200K invested in real estate, has resulted in $700K of real estate equity, controlling $1.5M in real estate, and a $40K/annum. of net income covering my basic living expenses. And not in 10 years - in 4 years.

For someone that plans on working full time for 30-40 years in a job they may or may not be in love with (nothing wrong with that), and they simply don't have the knowledge or confidence to exploit one of the other investment vehicles out there, then indexing may be a viable option or worth it. This of course depends on one's definition of "worth it". :D
Don't you feel that buying real estate after it dropped precipitously is unlikely to be repeated in the near future? You're going to have wait a long time to see those types of returns again.

On the other hand, index investing is a long term process that is easily replicated without access to large pools of capital, specialized knowledge, or leverage.

FWIW, I turned $2,500 of borrowed capital into $500k of realized profits over a 5 year time frame (2001-2006) in real estate.

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Re: S&P 500 -- Ten Years Thoughts?

Post by SmilerUK » Wed Nov 01, 2017 8:18 am

Great thoughts, thank you :-)

@TedSnippet -- Part of what you said is good news (9.3%), and the other part (up to 5% dip over next decade) not so good.

Is there somewhere I can see accumulated results for markets (dividends incorporated) rather than just the core index movement?

It's hard to map out risks without them.

FYI, I've got a full spreadsheet setup to handle all of this. Of course, one slip of the SUM() function and I'm a pauper or billionaire....

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Re: S&P 500 -- Ten Years Thoughts?

Post by ruralavalon » Wed Nov 01, 2017 9:18 am

SmilerUK wrote:
Wed Nov 01, 2017 8:18 am
Is there somewhere I can see accumulated results for markets (dividends incorporated) rather than just the core index movement?
For any fund, on Morningstar see the "Growth of $10k" graph. That shows totall return, which is -- share price, plus dividends, less expense ratio.
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Re: S&P 500 -- Ten Years Thoughts?

Post by TedSwippet » Wed Nov 01, 2017 9:19 am

SmilerUK wrote:
Wed Nov 01, 2017 8:18 am
Is there somewhere I can see accumulated results for markets (dividends incorporated) rather than just the core index movement?
The easiest way to get that data is to use a market's total return index, for example the S&P 500, or maybe this one for the FTSE 100.

If a given market lacks a total return index or if that index doesn't go back far enough then you'll probably have to do a bit more digging to find the data, but it's likely to be out there somewhere.

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Re: S&P 500 -- Ten Years Thoughts?

Post by WanderingDoc » Wed Nov 01, 2017 11:13 am

unclescrooge wrote:
Wed Nov 01, 2017 4:52 am
WanderingDoc wrote:
Sat Oct 28, 2017 11:28 pm
SmilerUK wrote:
Sat Oct 28, 2017 10:53 am
Hi SatuMedia!

Just wanted to get my thoughts in order.

In the 10 years from 1998 onward, on a $10k investment, the S&P 500 dropped massively and only recovered at the 11th hour, returning a few hundred dollars above investment.

Question:

This return doesn't include accumulation, I don't believe.

Is the S&P 500 still worth it overall?

I see Buffet / Bogle advice recommending it, with a preference to all-market. However these are available hedged in the UK.

Thanks so much for giving me confidence!

~ Kaz
In my opinion, no it isn't. You won't hear that on this forum though.

My ~$200K invested in real estate, has resulted in $700K of real estate equity, controlling $1.5M in real estate, and a $40K/annum. of net income covering my basic living expenses. And not in 10 years - in 4 years.

For someone that plans on working full time for 30-40 years in a job they may or may not be in love with (nothing wrong with that), and they simply don't have the knowledge or confidence to exploit one of the other investment vehicles out there, then indexing may be a viable option or worth it. This of course depends on one's definition of "worth it". :D
Don't you feel that buying real estate after it dropped precipitously is unlikely to be repeated in the near future? You're going to have wait a long time to see those types of returns again.

On the other hand, index investing is a long term process that is easily replicated without access to large pools of capital, specialized knowledge, or leverage.

FWIW, I turned $2,500 of borrowed capital into $500k of realized profits over a 5 year time frame (2001-2006) in real estate.
I agree with some of what you said. However, even in a housing recession, I expect 15%+ returns from INCOME alone. In a recession, often people don't buy homes and its much harder to get a loan. People still need a place to live and that means renting.
I can control my investments by buying in areas with great market fundamentals, geographic restriction, etc.
In contrast, with a stock market recession you may experience 30-50% loss, but are you getting a 15% dividend to keep you solvent? Nope.

The real estate investors I know make money in an up, down, and sideways market. There are a lot of variables you can control, different ways to mitigage risk, etc. Again contrasting with indexing, your only way to mitigage risk is to hold cash equivalents which is the same as earning a negative real return.

Also, real estate has created $3-4K of monthly income for me which is close to passive, in less than 4 years. $40K of net dividend income would take how much in stocks.. $2M? Not that you could access it since most is likely to be trapped in a retirement account.
One day it suddenly dawned on me that I had won the real estate lottery. | I'm not looking to get rich quickly. I'm not looking to get rich slowly. I'm looking to get rich for sure.

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Re: S&P 500 -- Ten Years Thoughts?

Post by unclescrooge » Sat Nov 04, 2017 10:53 pm

WanderingDoc wrote:
Wed Nov 01, 2017 11:13 am
unclescrooge wrote:
Wed Nov 01, 2017 4:52 am
WanderingDoc wrote:
Sat Oct 28, 2017 11:28 pm
SmilerUK wrote:
Sat Oct 28, 2017 10:53 am
Hi SatuMedia!

Just wanted to get my thoughts in order.

In the 10 years from 1998 onward, on a $10k investment, the S&P 500 dropped massively and only recovered at the 11th hour, returning a few hundred dollars above investment.

Question:

This return doesn't include accumulation, I don't believe.

Is the S&P 500 still worth it overall?

I see Buffet / Bogle advice recommending it, with a preference to all-market. However these are available hedged in the UK.

Thanks so much for giving me confidence!

~ Kaz
In my opinion, no it isn't. You won't hear that on this forum though.

My ~$200K invested in real estate, has resulted in $700K of real estate equity, controlling $1.5M in real estate, and a $40K/annum. of net income covering my basic living expenses. And not in 10 years - in 4 years.

For someone that plans on working full time for 30-40 years in a job they may or may not be in love with (nothing wrong with that), and they simply don't have the knowledge or confidence to exploit one of the other investment vehicles out there, then indexing may be a viable option or worth it. This of course depends on one's definition of "worth it". :D
Don't you feel that buying real estate after it dropped precipitously is unlikely to be repeated in the near future? You're going to have wait a long time to see those types of returns again.

On the other hand, index investing is a long term process that is easily replicated without access to large pools of capital, specialized knowledge, or leverage.

FWIW, I turned $2,500 of borrowed capital into $500k of realized profits over a 5 year time frame (2001-2006) in real estate.
I agree with some of what you said. However, even in a housing recession, I expect 15%+ returns from INCOME alone. In a recession, often people don't buy homes and its much harder to get a loan. People still need a place to live and that means renting.
I can control my investments by buying in areas with great market fundamentals, geographic restriction, etc.
In contrast, with a stock market recession you may experience 30-50% loss, but are you getting a 15% dividend to keep you solvent? Nope.

The real estate investors I know make money in an up, down, and sideways market. There are a lot of variables you can control, different ways to mitigage risk, etc. Again contrasting with indexing, your only way to mitigage risk is to hold cash equivalents which is the same as earning a negative real return.

Also, real estate has created $3-4K of monthly income for me which is close to passive, in less than 4 years. $40K of net dividend income would take how much in stocks.. $2M? Not that you could access it since most is likely to be trapped in a retirement account.
All true, but this doesn't constitute a passive investment, nor is it in any way comparable to a 3 fund portfolio.

How much did you invest to get $3k/month, and how much leverage did you use?

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Re: S&P 500 -- Ten Years Thoughts?

Post by WanderingDoc » Sun Nov 05, 2017 12:58 am

unclescrooge wrote:
Sat Nov 04, 2017 10:53 pm
WanderingDoc wrote:
Wed Nov 01, 2017 11:13 am
unclescrooge wrote:
Wed Nov 01, 2017 4:52 am
WanderingDoc wrote:
Sat Oct 28, 2017 11:28 pm
SmilerUK wrote:
Sat Oct 28, 2017 10:53 am
Hi SatuMedia!

Just wanted to get my thoughts in order.

In the 10 years from 1998 onward, on a $10k investment, the S&P 500 dropped massively and only recovered at the 11th hour, returning a few hundred dollars above investment.

Question:

This return doesn't include accumulation, I don't believe.

Is the S&P 500 still worth it overall?

I see Buffet / Bogle advice recommending it, with a preference to all-market. However these are available hedged in the UK.

Thanks so much for giving me confidence!

~ Kaz
In my opinion, no it isn't. You won't hear that on this forum though.

My ~$200K invested in real estate, has resulted in $700K of real estate equity, controlling $1.5M in real estate, and a $40K/annum. of net income covering my basic living expenses. And not in 10 years - in 4 years.

For someone that plans on working full time for 30-40 years in a job they may or may not be in love with (nothing wrong with that), and they simply don't have the knowledge or confidence to exploit one of the other investment vehicles out there, then indexing may be a viable option or worth it. This of course depends on one's definition of "worth it". :D
Don't you feel that buying real estate after it dropped precipitously is unlikely to be repeated in the near future? You're going to have wait a long time to see those types of returns again.

On the other hand, index investing is a long term process that is easily replicated without access to large pools of capital, specialized knowledge, or leverage.

FWIW, I turned $2,500 of borrowed capital into $500k of realized profits over a 5 year time frame (2001-2006) in real estate.
I agree with some of what you said. However, even in a housing recession, I expect 15%+ returns from INCOME alone. In a recession, often people don't buy homes and its much harder to get a loan. People still need a place to live and that means renting.
I can control my investments by buying in areas with great market fundamentals, geographic restriction, etc.
In contrast, with a stock market recession you may experience 30-50% loss, but are you getting a 15% dividend to keep you solvent? Nope.

The real estate investors I know make money in an up, down, and sideways market. There are a lot of variables you can control, different ways to mitigage risk, etc. Again contrasting with indexing, your only way to mitigage risk is to hold cash equivalents which is the same as earning a negative real return.

Also, real estate has created $3-4K of monthly income for me which is close to passive, in less than 4 years. $40K of net dividend income would take how much in stocks.. $2M? Not that you could access it since most is likely to be trapped in a retirement account.
All true, but this doesn't constitute a passive investment, nor is it in any way comparable to a 3 fund portfolio.

How much did you invest to get $3k/month, and how much leverage did you use?
Thats $36K per year on the lowest end, in the worst year. Less than $220K in invested capital (down payments). Thats about a 15% return on dividend income alone. I wasn't going to mention leveraged appreciation, which amounts to several hundred percent return from equity growth in less than 5 years.
I think the key is - cash flow into my checking account, that I can use now, with exquisitely favorable tax treatment :) Not having to wait until a random point in the future, assuming one will still be alive. One thing's for sure, a human WILL be less healthy and less mobile decades into the future vs. now. I'd bet my chips on that.
I will agree with you, all of this isn't passive. But neither is working full time for 42 years 8-)
One day it suddenly dawned on me that I had won the real estate lottery. | I'm not looking to get rich quickly. I'm not looking to get rich slowly. I'm looking to get rich for sure.

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