Investing General Discussion

Gravel said:

You'd probably be okay doing just two years (very few bear markets last longer than that; basically the 60's is about it). And after the first 10 or so years, you'll know whether sequence of returns has fucked your portfolio. If you last those first 10 years, you should be good to go.

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There is a reason I use to the terms cyclical and secular. Cyclical bears can and should be ignored by long term investors, they are just buying opportunities. Secular bears are never easy and never will be and can destroy decades of diligent planning. We have have had 4 secular bear markets since the civil war his plan would likely not work if he finds himself in one again. That doesn't mean you live in fear of it, his line about adapting is well spoken. The rules you live by about dollar cost investing into broad index are rules of secular bull markets. You spend so much of your life in them that people begin to think they are the only way things can be. No generation has escaped a secular bear, maybe us living through the 2000-2013 period counts for us Gen Xers has having had ours. Gen X is really rather irrelevant we are small population group. These are demographic cycles, the millennials as a world wide pop bubble are going to have their secular bear we can adapt and overcome but we better not be flippant as to their existence.

Secular Bear Markets
1929-1946
1966-1982
2000-2013

There will always be chances to make money during cyclical cycles within a secular trend, but there should be subtle but key changes in behavior to the ruleset that guides us during a secular bull.

Fogel said:

You can take any 10 year period of the S&P including the 07 recession, dot com busts etc and you'll still average a 10% return

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You'd have to define exactly what you are saying, there are extensive periods with no return.

One of the common fallacies people get into about stock market returns is a quirk of math.
If in year 1 the S&P goes up 50% then year 2 the S&P goes up 50% then in year 3 the S&P goes down 50%. Then Johnny investor looks up on wiki/google "What is the average return of the S&P for yrs 1-3 ?" And gets their answer of 17%/yr

Now if we look at someone invested for that period:
Johnny invest $100 . After year 1 he has $150 and after year two he has $225 and after year three he has $112.50.

Now if Johnny listened to some people in this thread he is going to be mighty upset when in year three he is up only 12% after he was told the market averages 17% a year. Telling people they can make 10% a year in stocks is just a white lie we tell people to try to get them to put some damn money in their 401k accounts.

Edaw said:

I was told I could live off the interest!

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The number of people who will say "The market returns 10-12% on avg" without ever actually understanding what that stat means is always funny to me. People love Bogle but apparently did very little reading on average investor returns over long periods. For marketing purposes the fuzzy math and logic is always emphasized because people simply don't save enough so we tend to paint things in a very positive light and ignore some hard truths to persuade the wanted behavior.

The numbers do nothing but get worse the more you look at them. We of course don't invest with one lump sum at the beginning of a period, we DCA over years. This means we only partially participate in the upside but we fully participate in the downturns. I'll show some examples later how much this effects the end results. We look at a period and say "the market went up 70% over this period" but that is only true for the investor for the dollars that were there on day 1. The vast majority of people are investing biweekly over extended periods, this means that during long bull cycles you are going to underperform the market simply by the dynamics that are at play.

By our age people need to have realistic expectations and leave the rose colored glasses stuff to the 20 yr old we are convincing to do without a part of their paycheck for long term benefit.