Is the stock market getting too hot? Discuss...

[jhogue]

mathjak,

I am not sure of the point of your last post and chart. Are you inferring that 30 year Treasury bond interest rates have no place to go but up?

[mathjak107]

they may hit a speed bump down like in the past but basically , yes , up towards historical averages is what cycles tend to do once they get so low.

interest rate cycles can run very long time frames if you bet to heavy on them .

while i hold quite a few bond funds , they are all less sensitive to interest rates . my floating rate one is up almost 2.50% , my corporate is down 2.70 and the others are pretty flat . tlt i think is down over 7% for comparison. that is a heavy drag along with gold on the most likely pony which is typically equities .

all i know is i can be down an awful lot and i likely would still be ahead of where i would have been playing around with tlt and gold all these years and i am 50/50 since we retired 3 years ago . i was 100% for decades prior .

all the back testing in the world does not mean a thing . all that counts is your balance over your time frame

[jhogue]

I don't see hard evidence that long term interest rates are rising significantly. Today (5/18/2018) Fidelity was showing 30 year T-bonds at 3.23%, an insignificant rise from the 2015 chart you posted.

[mathjak107]

I don't see hard evidence that long term interest rates are rising significantly. Today (5/18/2018) Fidelity was showing 30 year T-bonds at 3.23%, an insignificant rise from the 2015 chart you posted.

they rose enough to pull tlt down 7% just the last few months . in fact with the 10 year bottoming below 2% compared to now on a percentage basis how much has that 10 year gone up ? 60-70%

[stuper1]

Harry Browne -- agnostic about the future. Mathjak107 -- certain about the future.

Who am I going to believe?

[dualstow]

-What would you think of someone who was 100% in cash?
(snip>

I would consider 100% T-Bills super conservative but not insane if one were older and using a low withdrawal rate. Or were these question rhetorical?

barrett,
1. Nobody on this forum loves cash more than I do, but being 100% in cash long term is not really a safe long term investment strategy-- unless you are really old and have a really low withdrawal rate. If it was completely safe, we could just close down this forum and stick our stash under the mattress. To visualize the dangers of cash, we need go no further than Tyler's wonderful heat maps and drop in "100" for "T-bills/cash." It may surprise some people that cash can have years-long stretches of negative real returns.
...

I pretty much agree, but remember that cash is usually not defined as paper rectangles under the mattress, as that is very different from t-bills. And yes, I see the "to visualize the dangers" line above.

[jhogue]

Harry Browne -- agnostic about the future. Mathjak107 -- certain about the future.

Who am I going to believe?

Good question!

[mathjak107]

am not certain about the future ever . but there are things that make sense and things that don't .

owning bonds is fine , since we don't know the future . but owning overly interest rate rate sensitive stuff is like betting on a high beta fund at this time .

i wouldn't do either .

my portfolio is dynamic and always has been so nothing is forever , there are better funds and investments at different times . there are times i certainly would hold high beta stock funds but now i hold funds lower in beta. same with my bond funds .

overall the models i use are doing fine , i posted the returns above . " the 25% income model is still down about .75% ytd . the growth and income model i run which is 60/40 is up 3% and the 100% equity growth model up 6% . but when coupled with the past years returns are very very good .

[mathjak107]

Harry Browne -- agnostic about the future. Mathjak107 -- certain about the future.

Who am I going to believe?

well i think your portfolio balance would be a whole lot higher at this point if you had gone with mathjak rather than harry . it reaches a point even the biggest drops would still leave you with a higher balance .

with an expected 800 billion dollars from the tax cuts expected to be put in corporate pockets , much of which is likely to see capital expenditures' propelling sales at other companies as well as stock buy backs i would say things do not look bad for equities.especially now that the tariff's are fading . but even then at the worst we were talking was only 80 billion in tariff damage against 800 billion in capital being injected.

i am not saying bet the ranch but i think once again equities will pull the portfolio's way a head. the weight of long term treasuries and gold will likely just pull equities back by the collar hurting things once again .


peter lynch said it best . " more money is given up or lost in anticipation or preparation for the next downturn than has ever been lost by markets in a down turn" poor investor behavior is what hurt people not markets and studies show risk adverse people stay no better in things like the pp . they just have lower trigger points to losses or reactions to being left behind when the bull is soaring and they are, MEH .. .

so as i always say it ends up having little logic mitigating these temporary dips with assets that hurt long term performance on long term money and yes even at 65 we have long term money we would not eat with for 20-30 years . 40-60% equities fills that bill very nicely if retired .


looking at the performance of the insight models shows ,

the insight growth and income model , 60/40 is up 7x since 1993 when it started out . 100k is now 700k .

the growth model , 80-100% equities has seen 100k in 1987 when it started grow to 2.80 million .

the very conservative income model , 25% equities has seen 100k in 1991 when it started grow to 410k

these are using plain ole fidelity funds .

will the past repeat ? no one ever knows but if you take any typical retirement or accumulation stage that spans decades returns always seem to fall out within 2% or so as an average with each other despite wars , crashes , recessions and everything else thrown at us over these periods ..

[hardlawjockey]

peter lynch said it best . " more money is given up or lost in anticipation or preparation for the next downturn than has ever been lost by markets in a down turn" poor investor behavior is what hurt people not markets and studies show risk adverse people stay no better in things like the pp . they just have lower trigger points to losses or reactions to being left behind when the bull is soaring and they are, MEH .. .

Probably very true but what is it that you propose to ameliorate this problem? Sounds like you are advocating to either turn your finances over to a trained professional with expertise in market timing or become one yourself.

I think most of us here, myself included, are disinclined, based on past experience, to go in either direction.

[mathjak107]

i am advocating no such thing unless the investor lacks the discipline to handle their own money .

even just a simple portfolio indexing the equities and using assorted bond funds but mostly ones not all that interest rate sensitive at this stage would have generated decent gains as long as you did not exhibit bad investor behavior . . .

i have used the fidelity insight newsletter for more than 30 years with excellent returns simply because i am a tinkerer at heart . i know me , i would always second guess my last move and plan the next . so i just let the newsletter make the fund choices . easy peasy ....

no real market timing involved . you may use a particular fund over a particular time frame and swap it eventually but certainly no in or out of the markets .

there are similar ones for vanguard too with excellent records and nicely balanced portfolio's that work efficiently to meet their goals by the beta of the portfolio . all i know is i grew a lot of money over the decades and made efficient use of the compounding power of my portfolio's . i have been through crashes ,wars , and the greatest financial collapse since the great depression . if i looked at my balance today and slept all those years i would never have known anything bad happened .

[mathjak107]

i did that earlier above .

the insight growth and income model , 60/40 to 70/30 at times is up 7x since 1993 when it started out . 100k is now 700k .

the growth model , 80-100% equities has seen 100k in 1987 when it started grow to 2.80 million . that is around 11% cagr return .

the very conservative income model , 25% equities has seen 100k in 1991 when it started grow to 410k

the sector investing model 100k in 1988 is 3.98 million

these are using plain ole fidelity funds and reflect the closing 12/31 2017 . they are higher today ..


ytd as of last night

the growth model up 5.93%

the sector investing model up 6.00%

unique opportunity model up 5.44%

60/40 growth and income model up 3%

income model down .90%


at this stage in retirement i am 40% in the income model and 60% in growth and income . it works out to about 50/50 in total

[mathjak107]

this is an example , it is many many years old , so no one should use it .