Gyroscopic Investing

Pointedstick wrote: I'm not sure what accounts for the differences but I imagine how survivorship bias is taken into account may have something to do with it. Perhaps people who were unlucky enough to invest in companies that closed their doors got the lower return. Either way, those are not impressive numbers.

they don't have to be impressive . they just point out that equity's are not as risky as all those who are gun shy make them out to be over the long haul.

while they don't hit a home run every year they do perform the best long term out of every asset class and likely will continue to do so .

there is nothing that risky about a 50/50 or 60/40 portfolio. it may have volatility but risk over 20-30 years is going to be one of the lowest  ways you can invest .

as an investor i know i am not going to win all the time but i do want the highest odds on my side.

mathjak107 wrote:

Pointedstick wrote: I'm not sure what accounts for the differences but I imagine how survivorship bias is taken into account may have something to do with it. Perhaps people who were unlucky enough to invest in companies that closed their doors got the lower return. Either way, those are not impressive numbers.

these  studies are based on broad  index's  or well diversified funds  not individual companies which introduces a whole other issue of risk namely individual company risk  and are not comparable .

Well, the S&P500 was created in 1957. The DJIA is old enough but certainly not representative of all stocks. So which index was chosen over which time periods and which weighting will certainly have en effect on the numbers.

i believe the dow was t the first index going back to 1896 or so.  s&p introduced their first one in  the 1900's  which eventually molded in to the s&p 500 index in 1956.

i see this one is marked the s&p 500 and its prior predecessor  from s&p

just about everything that goes back that far says data from composite s&p index so they must  have had something standardized since then because shillers data starts in 1871

iwealth wrote:

mathjak107 wrote: http://www.fidelityinsight.com/about/pe ... f2012.html

2013 should have been an amazing year for high growth stocks, but your newsletter underperformed the S&P500 by 6%. There's a reason hedge funds have been getting destroyed by index funds lately and it's because all of those quants and high frequency traders running the funds are exploiting the same edges. It's all been arbitraged away.

Here's a good article on advisers, computers, and investing trends.

Man vs. Machine: The Great Stock Showdown

It has always been difficult for investors to consistently beat index funds. It has been nearly impossible lately.

And there's a double whammy: The small number of advisers who outperform the market rarely can keep doing so.

One big culprit, experts say: the rise of sophisticated computer-trading programs.

Consider the 51 advisers out of more than 200 on the Hulbert Financial Digest's list who beat the market in the decade-long period that ended April 30, 2012, as measured by the Wilshire 5000 Total Market index, including reinvested dividends.

Of that group, just 11—or 22%—have outperformed the overall market since then. That's no better than the percentage that applies to all advisers, regardless of past performance. Over the past year, on average, the group has lagged the Wilshire index by 6.2 percentage points.

http://www.wsj.com/articles/SB100014241 ... 4109438438

the problem with indexing and i own them is they are straw man returns no one really gets.

unless you never add money ,,never sell , never rebalance , never dollar cost average in you will not get those returns at all.
the other flaw in the argument is that while many times 80% of managers do not beat their index that is not true of investors if you follow the money.

there are thousands of funds out there , one year they are on top and another the bottom . if you added up the investor dollars in them they are such a small piece of fund dollars that they are barely a blip in the list . most of the time follow the money  and you will find  the biggest builk of investor dollars going in to the  better consistent long term performers  that are usually in the middle of the pack of those who beat their indexes ..


funds like fidelity balanced , fifelity growth company , etc , all have good long term track records and many billiions in investor dollars .

selecting from these funds that have the bulk of investor money improves your odds greatly .

even so for all the reasons above each one of us will have different results , some better some a lot worse using the same funds.

we have not even gotten to tax planning yet .  grandma can have a slightly higher expense fee but sell at a better time and have a better tax plan and blow mr boglehead's performance away.

your balance is going to be the only guide as to how you are really doing  unless that money just sits and sits from the day you put it in.

that is why i don't look at percentages that my funds do , i just look at my balance and either i am happy or i am not . but i have nothing to really compare to. anything else is a static mix .


even the pp is different for everyone here . some may have done better and some may have had a bigger balance in cd's and they bought in the same year ..

http://www.reuters.com/article/2014/01/ ... P520140128

mathjak107 wrote: the problem with indexing and i own them is they are straw man returns no one really gets.

unless you never add money ,,never sell , never rebalance , never dollar cost average in you will not get those returns at all.

So you've come around!  We all agree now that just looking at long-term returns on paper does not tell the whole story.

We've narrowed it down to you preferring the Fidelity Insight financial adviser to other options.  Not simply the PP, but also the stock market, the Trinity study portfolios, and other asset allocations.  That's fine, but it's a very different discussion.  You'll find pushback not just here but also on Bogleheads and many other forums. 

The Fidelity growth model only started in '86.  The Income model in 1992.  I'm happy it has worked for you so far, but there's no guarantee that will continue.  Advisers have a terrible track record in the long run.

it is only common sense your mileage will vary comparing to some index  but some things do not change just because they are based on your own balance and portfolio.

everything i said about the pp stands . it will never be a growth vehicle , never . but it was never designed as one . so if it is long term growth you wanted then you can pretty much count on not getting any where near the  nest egg saved  a growth portfolio will by games end .

if it is less volatility and a smaller balance you want -perfect.


i won't use the word safety but i will use the word less volatile  since all 20-30 year  time frames that the pp was around a growth portfolio  went through the same events and still came out way farther a head in most if not all of them at the end of the day ..


so for the most part , long term we have not seen "safer " from the pp  but we have seen less volatile.

mathjak107 wrote:
if it is long term growth you wanted then you can pretty much count on not getting any where near the  nest egg saved  a growth portfolio will by games end .

if it is less volatility and a smaller balance you want -perfect.

I think most people here will have no problem with that assessment.  Building your wealth via your career and not via investing is literally the first rule in the book that proposed the PP.  Not everyone prioritizes maximum long-term growth over other portfolio attributes.  Different strokes for different folks. 

mathjak107 wrote: i won't use the word safety but i will use the word less volatile  since all 20-30 year  time frames that the pp was around a growth portfolio  went through the same events and still came out way farther a head in most if not all of them at the end of the day ..

so for the most part , long term we have not seen "safer " from the pp  but we have seen less volatile.

Agreed. And we didn't even need to hold a referendum.

i have a different view. compounding on your money can be one of the most powerful forces .

the little bits we manage to save from our incomes is generally peanuts compared to what those bits and pieces can compound to over time.


for years now a decent up year is more than my wife and i earn in a year added together . while it is nice to grow a career most folks can't commit a lot of money to savings while raising a family for decades.

that is why i am so big on maximizing gain potential while matching ones pucker factor .

personally,  while growing money odds are being to conservative will end up hurting you more than going as aggressive as lets you sleep .

well off to dinner in  Manhattan  with friends , catch you all later .

mathjak107 wrote: i have a different view. compounding on your money can be one of the most powerful forces .

the little bits we manage to save from our incomes is generally peanuts compared to what those bits and pieces can compound to over time.

This couldn't be more different from the view here, which is that your career provides your wealth and that you should save up as much of it as possible. If you're only saving "little bits" then you'd better count on time and compounding because that's all you've got!

well why do you think the savings rate is so low in this country ?

in fact wages have lagged for decades now  . wages have fallen well behind inflation .
they are actually worse than the numbers even show since what improved wage growth from what it is was the fact women are earning more than they used to by a lot. wage incereases for men are a lot worse when you separate male and female.

the only savings folks seem to be able to round up is what they force themselves to contribute.


they need the maximum amount of compounding to help them out.

as they say a penny saved is a penny earned but it will always stay a penny unless allowed to compound well.

They need to fix the actual problem, which is not enough savings, rather than trying to throw a Hail Mary with their investments.

Xan wrote: They need to fix the actual problem, which is not enough savings, rather than trying to throw a Hail Mary with their investments.

Bingo.

And as for why people are such poor savers, there are a million reasons, and that's exactly the point: it's the easy thing to do, and people generally do the easiest thing. But it's really not that hard. For the most part you just have to avoid buying pointless shit. Right now my savings rate is 69% of my post-tax income, and what's left supports a 3-person family. We live a comfortable life and keep this up simply by avoiding the bafflingly awful expenses that most people seem to consider necessary.

you need both a career , savings and your money working for you .


while you work for your money it is just as important to have your money work for you as hard as it can .

a good career and pay check is only 1/2 the story , without growth on that money all you have is that penny you saved and little more.

i have made more money investing  in  nyc real estate deals  the last 12 years than i likely  saved my entire life from working .  it took me 50 years of life  to hit my first million and that was with a good stock market .  it took me only 3 years to triple it through investing  after that point .

the deals i did got bigger , the investments more lucrative and the opportunity's i was privy to got better as my connections got better .

but even taking the real estate out of the picture  , a nothing special mix of funds  invested for decades still grew nice amounts of money .

100k to more than 2 million  in markets  is an awful lot of growth too.
 
while yes the early years in the late 80's were  good market years the fact is  as of 2000 all that older money hit a brick wall and grew very little the last 15 years . so over the long term  those gains will likely average out the same as  all the other 30 year average returns and not anything  special.

even an s&p 500 index fund would have given you about 500k less and that is with 15 years of money producing 1.86%  real returns .

those early years when markets were good may not t have a lot of money accumulated yet either , certainly no where near the amount that hit that wall in 2000 for many investors who counted on monthlly contributions  to feed the investment machine . .

that is what history shows , markets tend to average out over decades to about the same thing no matter how they start off or end up .  i would bet those who started in 2000 and saw such anemic growth early on will still end up some where near the return averages we have had over 30 year periods too when they get there . .

for decades folks have been going "this time is different "  but in the end things seem to end up not so different ,

the accumulation stage has a way of working out in the end for investors who were quite aggressive in their growth years using diversified funds ..

the decumulation  stage is very different though as you have time restrains now when spending down.

burn up to much capital early on and it does not matter what the long term averages are , that money is gone and can not recover .

so the early years  of spending down are the most crucial to get through .  you want the highest odds on your side and being to conservative can have the same effect as being to volatile .

you need a balance or you need insurance products to set a base income .

but in any case nothing is going to be 100% . just different levels of success or failure  odds

.

Mathjak107

You know, I have now read your many responses and the premise to this thread.  I cannot argue with logic, I am 50, so probably still have 10-15 years left to accumulate.  I have been in the PP for a couple of years and agree, I have just preserved what I have, not much gain.  My initial portfolio was the Swenson portfolio and I am going back to this one starting Monday. In 10 years or so, I think the PP will then be a better option for me.  Thank you for the persistence and counter arguments, it just may allow me to reach my retirement goals after all.
Just out of curiosity, what do YOU think of the Swenson portfolio?  VTI 30%, VWO 10%, VNQ 15%, VGLT 15%, VTIP 15%, VEA 15%  That is the original  I also add a VBR component and substitute Long term treasuries for VGIT (intermediate term treasuries) and split VNQ with VNQI
THANK YOU

as i said my intervention is not to talk anyone out of the pp . it is just to make sure that  they look at whether they are using something that will meet  their goals and lifestyle and not just drink the kool aid and in some cases leave a million bucks in retirement money on the table  for no other reason than a  vision in their  head has them convinced that something worse than the great depression is coming .

that thinking has left many behind over decades under invested and while they may have had a comfortable ride the end result is they paid a big price for that comfort ,

if they can afford it , great . heck if living in nyc wasn't so costly and this is where our kids and grand children are i could move ,  sell everything , go to TIPS ,short term bonds and an immediate annuity and call it a day but 2% inflation withdrawals would be all that is bullet-proof.

not enough to meet our goals so i have to trade that comfort for more volatility to have a high success rate of meeting the income levels we would like .



it looks like that portfolio it is very similar to my own which stands at 55/30/15  as of friday.  equity's /bonds /cash .


the version as it stands now :


fidelity growth and income fund FDGRX - had this and blue chip growth for many many years.

fidelity blue chip growth FBGRX

vanguard total market index vti

vanguard extend market index VXF

vanguard veu all world index etf

vanguard vig dividend achievers etf

that is the equity side.

the bond side uses

vanguard admiral total bond fund (now only 10% of the portfolio , reduced from 30% )

fidelity floating rate high yield

vanguard bsv short term bond

vanguard vtip short term inflation proof bond etf

my logic is i will give equity's every possibility to squeak out gains with out being weighted down heavy or  wiped away when interest rates rise by holding a lot of very interest rate sensitive bond funds.

there is always time to nudge things if another recession looks possible .. the max of 60/40 is still pretty conservative compared to an all out growth model ,

fishdrzig wrote: Mathjak107

You know, I have now read your many responses and the premise to this thread.  I cannot argue with logic, I am 50, so probably still have 10-15 years left to accumulate.  I have been in the PP for a couple of years and agree, I have just preserved what I have, not much gain.  My initial portfolio was the Swenson portfolio and I am going back to this one starting Monday. In 10 years or so, I think the PP will then be a better option for me.  Thank you for the persistence and counter arguments, it just may allow me to reach my retirement goals after all.
Just out of curiosity, what do YOU think of the Swenson portfolio?  VTI 30%, VWO 10%, VNQ 15%, VGLT 15%, VTIP 15%, VEA 15%  That is the original  I also add a VBR component and substitute Long term treasuries for VGIT (intermediate term treasuries) and split VNQ with VNQI
THANK YOU

if nothing else i certainly perked up this forum    lol .

mathjak107 wrote:

fishdrzig wrote: Mathjak107

You know, I have now read your many responses and the premise to this thread.  I cannot argue with logic, I am 50, so probably still have 10-15 years left to accumulate.  I have been in the PP for a couple of years and agree, I have just preserved what I have, not much gain.  My initial portfolio was the Swenson portfolio and I am going back to this one starting Monday. In 10 years or so, I think the PP will then be a better option for me.  Thank you for the persistence and counter arguments, it just may allow me to reach my retirement goals after all.
Just out of curiosity, what do YOU think of the Swenson portfolio?  VTI 30%, VWO 10%, VNQ 15%, VGLT 15%, VTIP 15%, VEA 15%  That is the original  I also add a VBR component and substitute Long term treasuries for VGIT (intermediate term treasuries) and split VNQ with VNQI
THANK YOU

if nothing else i certainly perked up this forum    lol .

Burn the witch! Burn the unbeliever! Let's shun him!

mathjak107 wrote: there is always time to nudge things if another recession looks possible .. the max of 60/40 is still pretty conservative compared to an all out growth model ,

Did you successfully predict the recessions in 2001 and 2008 and react correctly beforehand?

Pointedstick wrote: And as for why people are such poor savers, there are a million reasons, and that's exactly the point: it's the easy thing to do, and people generally do the easiest thing. But it's really not that hard. For the most part you just have to avoid buying pointless shit. Right now my savings rate is 69% of my post-tax income, and what's left supports a 3-person family. We live a comfortable life and keep this up simply by avoiding the bafflingly awful expenses that most people seem to consider necessary.

The exact % savings rate is sort of irrelevant isn't it? Saving 69% of $1,000,000/yr isn't all that hard. Saving 69% of $50,000 is a different story. The actual dollar amount you use to support that 3-person family is the critical data point. Not that I want you to divulge, but I'm sure you understand what I'm getting at.

iwealth wrote: The exact % savings rate is sort of irrelevant isn't it? Saving 69% of $1,000,000/yr isn't all that hard. Saving 69% of $50,000 is a different story. The actual dollar amount you use to support that 3-person family is the critical data point. Not that I want you to divulge, but I'm sure you understand what I'm getting at.

To a certain extent that's true, but lifestyle inflation is a real thing, and by the time you're making a million bucks a year, you're likely running with a crowd that will pressure you to own a mansion whose running costs are $50k a year, vacation home, a boat, multiple luxury vehicles, expensive art, titanium golf clubs, etc. Also, the number of people earning a million dollars a year is pretty small. For the average  income range of, say, $30-100k, I think it's pretty good.

mathjak107 wrote: if nothing else i certainly perked up this forum    lol .

If equities experience a sharp correction, make sure you stick around to collect the tears

Pointedstick wrote:

mathjak107 wrote: there is always time to nudge things if another recession looks possible .. the max of 60/40 is still pretty conservative compared to an all out growth model ,

Did you successfully predict the recessions in 2001 and 2008 and react correctly beforehand?

actually i didn't react at all to the 2000 one . the models never held much in dot coms or tech .as usual  there never is a reaction  TO CORRECTIONS OR DOWN TURNS , IT IS BUSINESS AS USUAL.

doing nothing or making subtle changes is all i would want to do .

2008  was a different story . just as part of my retirement plan i wanted to go from the growth portfolio to the income and capital preservation mode .

so as luck had it we made a lot of money in some apartment liquidations  in 2007 and i decided we were going to retire early..

we bought a 2nd home in the pocono's in pa and the plan was to retire there  in a few years. so while we were still up doing nicely my wife and i discussed making the change so we had more of what we wanted for retirement land in place .

well as luck had it i already made the change when 2008 turned nasty.

the irony is 5 years later we decided we did not want to retire there . it just lacked many of the things that were becoming more important to us as we aged.

no public transportation if we couldn't drive

harsh long winters when we couldn't ski

many of the reasons we entertained retiring there like hunting and fishing locally  we ended up not doing much .

limited specialists and medical facility's

all low paying jobs if i wanted to work so we killed the idea , sold the house 3 years ago this week  and instead decided to keep working a bit longer since we didn't move .

in 2009 i decided the income model was to conservative by itself and so i put 1/2 n the growth and income model  too where it stayed up until two weeks ago when i decided to use my own model.

the mtwo portfolio's had a good overall balance together but eventually it ended up with a lot of overlap since the models started using the same bond funds but in different percentages.

it was just toooooo much in bonds for my taste at this point when you took the two together so i created my own model.


so while i didn't predict 2008 i did luck out and miss much of it but i can tell you i never planned it that way . it was just the way the timing worked out of everything . .

1NV35T0R (Greg) wrote:

mathjak107 wrote:

fishdrzig wrote: Mathjak107

You know, I have now read your many responses and the premise to this thread.  I cannot argue with logic, I am 50, so probably still have 10-15 years left to accumulate.  I have been in the PP for a couple of years and agree, I have just preserved what I have, not much gain.  My initial portfolio was the Swenson portfolio and I am going back to this one starting Monday. In 10 years or so, I think the PP will then be a better option for me.  Thank you for the persistence and counter arguments, it just may allow me to reach my retirement goals after all.
Just out of curiosity, what do YOU think of the Swenson portfolio?  VTI 30%, VWO 10%, VNQ 15%, VGLT 15%, VTIP 15%, VEA 15%  That is the original  I also add a VBR component and substitute Long term treasuries for VGIT (intermediate term treasuries) and split VNQ with VNQI
THANK YOU

if nothing else i certainly perked up this forum    lol .

Burn the witch! Burn the unbeliever! Let's shun him!

ha ha ha love it.

actually i am impressed that you all were so nice . for the most part the discussions were interesting and civil.

while i may not agree with some of the charts and the time frames  , tyler is amazing with his spread sheets and they sure are purdy looking too.