This forum loves stocks, but will they love you back?

[White.Beard.Doc]

The NY Times published an economist's contrarian view on stock investing yesterday, an opinion piece. What do you think of the idea that a high stock allocation is best for the very young and the very old, but not so much in the middle years? This forum, overall, is radically in favor of stock investing, but the majority of folks on this forum have never lived through a decade of terrible returns on stock investments. I feel like many of you will be in for some shockingly painful years at some point in your future investing careers. You simply have not lived through them yet.

I attached the opinion piece here because of the paywall. What are your thoughts on this concept?


NYT Opinion on Stocks.docx

[bovie]

The NY Times published an economist's contrarian view on stock investing yesterday, an opinion piece. What do you think of the idea that a high stock allocation is best for the very young and the very old, but not so much in the middle years? This forum, overall, is radically in favor of stock investing, but the majority of folks on this forum have never lived through a decade of terrible returns on stock investments. I feel like many of you will be in for some shockingly painful years at some point in your future investing careers. You simply have not lived through them yet.

I attached the opinion piece here because of the paywall. What are your thoughts on this concept?


[ATTACH]n312163[/ATTACH]

Mathematically and statistically sound.

Psychologically, emotionally, and behaviorally, is likely a different story.

That's an issue for some, and not so much for others.

[Tangler]

What is the alternative?

Inflation is here.

Bond yields suck.

Realestate is also risky, and time consuming, and is a less efficient market where the average busy doc is at an huge informational disadvantage.

Stock index funds are simple, effective, require minimal time, and available to everyone.

A busy doc can just pile the money in every month for 10-30 years and win.

Sure we are probably in for some rough rides and stormy seas but we plan to stay the course and ignore the noise.

Also, NYT has become such a wonderful source of unbiased journalism. They go out of their way to present multiple viewpoints 🙄.

[JBME]

All I can say is that at least for those of us who are still 10+ years from retirement, everything I've ever seen/read says never has the stock market return over a 10+ year period been negative. If I put $1m in equities in 1999 it wouldn't have been worth less in 2009. That gives me piece of mind. Just because something has never happened doesn't mean it won't in the future, but I will hurt myself investmentwise more if that scares me away.

All that said, I am a fan of Bernstein's saying that when you've won the game you should stop playing. Within 5-10 years of retirement I plan to move my AA from 90/10 to 65/35 or 60/40 AND have 2-3 years of expenses in cash. Targeting 2-3 years in cash, 6-8 years in bonds, and the rest in equities. Not sure what AA that really will come out to

[Dont_know_mind]

So much of this is psychological.
I think my risk aversion has reduced over the years as my investment knowledge and net wealth has increased.
My risk appetite was lowest when our kids were 0-5. But looking back, that may have been because I was underinsured.

So many nuances.
I think it is hard to go past a 50:50 global:US portfolio. Commodity stocks and a globally diversified portfolio may have better inflation protection properties than a tech heavy US only portfolio, but who knows, it may not…

DFA may have a bias, due to the incentive to sell their products. I used to think Pfau, Kitces, and the DFA/factor guy (can’t remember his name) were very wise. But looking back, the thing that opened my eyes was the NBER article on myopic risk aversion.

The intellectual arguments against the power of broad based indexes seems convincing initially. But that’s the rub of it- if they are as Buffett and Bogle said they were- worth hanging your hat on, then the arguments against are mainly (myopic) risk aversion.

That will determine the stayers and that one point will determine the indexers outcome.

Thanks for posting the article and query WB. This is something I have struggled with.

[Larry Ragman]

ERN demonstrates the same thing in his Safe Withdrawal Rate series. That is, either bond tent or rising equity glide path make sense for those retiring at a more or less normal age. As always, devil is in the details. For early retirees he argues the need for high equity allocations because of longer time horizons and less access to SS. For those of you who take comfort in the fact that stocks have always recovered, bear in mind that the issue +/- 5 years from retirement is the withdrawals you make in the down market. These have the inverse of compounded gains.

What to do? Save a lot; invest in equities; go 60/40 or 50/50 at retirement; start building equities again 3-5 years later. YMMV

[Dewangski1]

Agree with Tangler. Where else is supposed to park for 10 years? There’s just nowhere else for the masses to consistently find returns. Despite being 15 years out from RE, I’ve saved enough to the point that I wouldn’t mind incorporating some capital preservation in my strategy, but I don’t see any particularly attractive options. Thus, I’m still mostly all in on the market, but have built a cash egg to be used when an opportunity presents itself, either a dip or a higher interest rate.

[G]

Well, for about 10 years, I've been 5-10 years away from retirement, and now me and work are only casually dating...so I'm perhaps 1-2 years from retirement. So not sure where that places me in the authors life cycle.

As said above, what's the alternative to stocks? I suppose I could load up onto TIPS; just typing that sounds ridiculous. I never joined the I bond party; i guess i could start...maybe in 10 years I'll have one year of expenses saved.

And assuming the worst case for stocks, what does the economist think will happen to the wealthy who own the American economy (own stocks)? They will still be wealthy, in comparison, so what is the actionable move?

It is amusing when economists apply their science without considering the real world. (Doctors are not immune ro the same thing. )

[Turf Doc]

ERN demonstrates the same thing in his Safe Withdrawal Rate series. That is, either bond tent or rising equity glide path make sense for those retiring at a more or less normal age. As always, devil is in the details. For early retirees he argues the need for high equity allocations because of longer time horizons and less access to SS. For those of you who take comfort in the fact that stocks have always recovered, bear in mind that the issue +/- 5 years from retirement is the withdrawals you make in the down market. These have the inverse of compounded gains.

What to do? Save a lot; invest in equities; go 60/40 or 50/50 at retirement; start building equities again 3-5 years later. YMMV

I feel like I don’t hear enough about the need to be flexible considering how that eliminates so many of the problems of safe withdrawal rates that people will discuss ad nauseum. Maybe that’s a plus for SWR actually, it gives people something to talk about…

[zlandar]

The writer talks about the lack of RL examples. Well here is a RL example: my group's cash balance account. It's 40/60 stocks/bonds which is a conservative portfolio. The current asset amounts and gain/losses over the last 2-3 years:

VTI- $2m, $650k gains
VXUS- $600k, $60k gains
BND- $1.8m, -$40k loss
WACPX- $1.8m, -$36k loss (active bond ETF)

So if you were in your mid-50's with a bond-heavy portfolio like my group's CBP what would be running through your head when you see these returns? The article writer doesn't seem to comprehend that bonds can perform poorly.

[Hatton]

I think many who post here have not lived thru a gut wrenching drawdown/crash like 2000/1 or 2008. I was heavily invested in tech stocks in the late 90s. My net worth took at huge hit and had just recovered when 2008 happened. I began to learn about tax loss harvesting and used the harvests to start indexing. It is a terrible feeling when this is happening. I saw many docs panic and go to cash during this period. You really do not know until you get tested by something like a lost decade. I think far too many posters here advocate 100% stock portfolios have never been tested. In general bonds are a hold your nose kind of purchase to help you psychologically survive these times. I think a cash bucket also is very comforting psychologically after retirement. One has to decide the asset allocation one is comfortable with. Some folks are too risk averse with a bond allocation as well. Bonds can be risky if you reach for yield. I have a lower percentage of bonds at my age than I thought I would but the value of all my positions is higher than I expected so I think I am ok.

[Hatton]

The writer talks about the lack of RL examples. Well here is a RL example: my group's cash balance account. It's 40/60 stocks/bonds which is a conservative portfolio. The current asset amounts and gain/losses over the last 2-3 years:

VTI- $2m, $650k gains
VXUS- $600k, $60k gains
BND- $1.8m, -$40k loss
WACPX- $1.8m, -$36k loss (active bond ETF)

So if you were in your mid-50's with a bond-heavy portfolio like my group's CBP what would be running through your head when you see these returns? The article writer doesn't seem to comprehend that bonds can perform poorly.

Bonds lost money in 2008.

[Tim]

“Targeting 2-3 years in cash, 6-8 years in bonds, and the rest in equities. Not sure what AA that really will come out to”
11 years is very very conservative. You likely will never have a SORR.

”I feel like many of you will be in for some shockingly painful years at some point in your future investing careers. You simply have not lived through them yet.”
Yes, if you have never been in a disaster, you will experience new things. True.

If you need the money within 5 years, it shouldn’t be in the market. Defining AA as stocks/bonds is flawed.
Stocks/bonds/cash. Sufficient cash makes a huge difference.

The market in stocks changes the AA from 80/20 to 60/40 and back up to 70/30. The cash is allocation is the insurance (or alternative sources of income).
The top 10% will still be the top 10%. Just a lower amount. Secular trends are impossible to forecast. Market timing long term. Circle back in 10-30 years and let me know how it works out. No clue other than the stocks are more volatile than the bonds.

[GasFIRE]

Bonds lost money in 2008.

Bonds were the winner because they lost the least.

[The White Coat Investor]

What is the alternative?

Inflation is here.

Bond yields suck.

Realestate is also risky, and time consuming, and is a less efficient market where the average busy doc is at an huge informational disadvantage.

Stock index funds are simple, effective, require minimal time, and available to everyone.

A busy doc can just pile the money in every month for 10-30 years and win.

Sure we are probably in for some rough rides and stormy seas but we plan to stay the course and ignore the noise.

Also, NYT has become such a wonderful source of unbiased journalism. They go out of their way to present multiple viewpoints 🙄.

The alternative is save more knowing your returns on stocks, bonds, and real estate will likely be lower in the next ten years than the last ten.