I was just hoping for some opinions on whether stocks truly compensate investors in times of growth/prosperity. Plenty of people argue that the link between GDP growth and stock market returns is pretty tenuous, and even negative in some cases (see GMO: Reports Of The Death Of Equities Have Been Greatly Exaggerated).
Do stocks really reward investors in times of growth? Or do we need to add the caveat that starting valuations matter a great deal in whether that's really the case? And how does all this tie in to the PP??
Stocks rewarding investors in times of growth?
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murphy_p_t
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Re: Stocks rewarding investors in times of growth?
I think your question is legitimate. However, the similar question is raised about gold (does gold do well during inflation?)
With the PP, I don't think answers to these questions are critical. I say this because I think the driving force is that the money, over time, will go into one of the asset classes we hold in the PP...its just that we can't predict reliably which one it will be (in the near term). This is why we need exposure to all the asset classes all the time.
As I think about this, I consider that the explanations given in HB's book about the individual asset classes are a little simplistic...which is fine since the work is very accessible to anyone who can read...because the overall PP works great. (No need to have a degree in finance or econ or read Forbes all the time.)
With the PP, I don't think answers to these questions are critical. I say this because I think the driving force is that the money, over time, will go into one of the asset classes we hold in the PP...its just that we can't predict reliably which one it will be (in the near term). This is why we need exposure to all the asset classes all the time.
As I think about this, I consider that the explanations given in HB's book about the individual asset classes are a little simplistic...which is fine since the work is very accessible to anyone who can read...because the overall PP works great. (No need to have a degree in finance or econ or read Forbes all the time.)
Re: Stocks rewarding investors in times of growth?
I'd consider an energy index fund, either VDE or VGENX. VDE is an ETF that is solely US stocks and VGENX is a mutual fund that is about 1/2 international energy stocks.
If there's growth, the growers need energy to do whatever it is they are doing to grow. Also consumer demand rises because people buy bigger SUVs and bigger houses (that require more fuel to heat over the winter and cool in the summer).
On the flip side if there's a decline, then energy does worse than the stock market because of a reduction in demand.
It seems reasonable to me to overweight/sector tilt towards energy if using the PP. Just don't overdo it.
If there's growth, the growers need energy to do whatever it is they are doing to grow. Also consumer demand rises because people buy bigger SUVs and bigger houses (that require more fuel to heat over the winter and cool in the summer).
On the flip side if there's a decline, then energy does worse than the stock market because of a reduction in demand.
It seems reasonable to me to overweight/sector tilt towards energy if using the PP. Just don't overdo it.