re: Prediction for the S & P Index

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So you are a poker player with no balls?

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no. however, for an apt comparison, i don't play over my bankroll and i have very small balls about making that mistake (for good reason)

i will never see or experience this





or this

you likely play with a bunch of guys i used to play with here in LC

Thank you very much for taking time to respond again. This is the kind of guidance that I was seeking. I will get a composite of my retirement accounts and see what stock/bond ratio that I have at this time. I think that my funds are 'adequate' and I should be able to assume less risk than what I have at this time.

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however I think that others that comment on this forum recognize that the market has returned to near historical highs

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Dating back to 1972 (47 full years), 78.7% (37) of the years large cap stocks had positive returns, with 62.4% of the months having positive retuns.

And looking at the end of the year value of a portfolio (price gains and dividends), in 31 of those years, almost 2/3rds, a portfolio would be at record levels. And that's even accounting for the fact that only 2 of the 12 years from 2000 to 2011 had record high finishes.

In other words, the fact that we're near record highs, in and of itself, is irrelevant. In fact, as the data have shown, given the compounded annual growth rate over that time is 10.23% (with standard deviation of 15.07%), we would expect to be at or near record highs far more often than not. So if when only invests in market when it’s not near record highs, then they will only be in the market during (when price is falling) and following a pull back until it’s back to pre-drop levels,

So not only is this logic flawed, I think it would end up leading to lower returns and increased risk. This is why timing the market is not recommended, especially when it has little consideration for the Marco conditions and the underlying fundamentals.

It’s also why the recommendations of one’s portfolio risk isn’t based on the market levels, it’s based on the time horizon and goals of the investment, whether 20 and just starting to invest or 70 and in the middle of retirement. The recommendations of being less exposed to riskier investments near or in retirement, have already built in potential drawbacks, without the risky crapshoot of “timing” the market.

What you are saying makes a great deal of sense to me. I have been investing in the market when it dropped from record highs and taking gains when it returned to pre-drop levels. Exactly as you described.

I have beaten my returns from my three (formally six) traditional IRAs and market averages for seven years (excluding the 2018 S & P return. Maybe I have been lucky because I am not greedy or maybe I am intuitive.

I will start to focus on a time horizon and focus on a realistic goal.

Your comments are much appreciated. CL

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You should take a look at modern portfolio theory. It is generally accepted in the professional investment world that 100% equities is not an efficient portfolio.

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But the whole point of MPT is to maximize the expected return while minimizing risk. As with MPT, one way to do that is through diversification.

But you know what else maximizes expected teurrn and minimizes risk? Increasing the time in the market., especially if one has a diversified equity portfolio (indexes usually), which is also aligned with MPT.

Let's say a person has 35-40 years until retirement, and is either going to choose an 80% US large cap, 20% US Total Bond Market portfolio or 100% portfolio for the first 30 years with $1,000 invested every month (similar to how most people invest).

Here is the historical performance of the two portfolios (80/20 is second).



As you can see the 80/20 portfolio has lower returns but also lower volatility, so as a result it has slightly better risk-adjusted returns (e.g., Sortino, Sharpe, etc). While those show the benefit of more diversified portfolio, they are flawed for the purpose of a 30 year investment with smaller contributions throughout the duration of the investing (essentially DCA). Specifically they measure risk on an annualized basis (standard deviation, downside deviation), but like any standard measure of variation around an estimator, the larger the sample, the smaller the standard error around the estimator. Furthermore, these measures don’t account for the minimization of volatility/risk with a DCA approach.

In order to see how the length of the investment impacts the performance and risk, I’ve done two Monte Carlo simulations based on the statistical returns over 30 years. Below are the expected returns at the 10th, 25th, 50th, 75th, and 90th percentiles.

The first one is 100% large cap portfolio, and the second one is the 80/20 portfolio. .





Now unfortunately it only provides the time-weighted rate of return (TWRR) at the top, and the final balance is based on the money-weighted rate of return (MWRR) given the monthly contributions (which minimizes volatility). But as you can see 80/20 portfolio underperforms the all stock portfolio across all intervals using the MWRR, and only outperforms it at the 10th percentile on the TWRR by 0.13% annually (which is 3.7% across 30 years).

So to say someone should never be 100/0 and should be 80/20, without taking into account the time horizon and the contribution breakdown, is just nonsense when the expected value is 21.4% (TWRR) to 31.8% (MWRR) higher for the 100/0 portfolio over 30 years.

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Agree 100%. How did we get to 'near record highs'? By surpassing all prior 'highs'.

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And another thing people fail to consider is that the S&P 500 historical dividend yield is like 4.3% but in recent years its been a bit under 2% as companies are more likely to do stock buybacks than ever before. In fact, until the early 90’s, it rarely dropped below 3%, and since then it’s rarely come close to 3%.

So just looking at the prices without considering the dividends doesn’t give the complete picture of the total returns, and in this case makes the recent increases in price compared to historical prices seem more extreme when it’s not a true apples to apples comparison.

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I guess it seems strange that someone who plays poker and is also an entrepreneur would have a such an extreme risk aversion to investing in a broad market (not picking a riskier stock or two) with strong and reliable returns over the long-term.

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control freak + scared of new things were barriers to entry

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And you've posted before about heath insurance costs looking at high-deducitible, HSA eligible plans. If you're utilizing those, then you can have the triple-tax benefits of an HSA while also utilizing it as a long-term investment to maximize growth.

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going to likely hit this next year 100%

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Everyone has.

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hmm no