Here's a statement of the obvious: The opinions expressed here are those of the participants, not those of the Mutual Fund Observer. We cannot vouch for the accuracy or appropriateness of any of it, though we do encourage civility and good humor.
“for most people, most of the time, is to construct a sensible, diversified portfolio, and then to give it time to compound.”
+1 and Thanks. Convincing people to view it this way would seem near impossible. That’s due largely I suspect to human nature, but to a lesser extent to the intensity of the information flow today plus the potential for “instant gratification” in today’s markets.
One of my favorite quotes: “Then tell Wind and Fire where to stop, but don’t tell me.” - Madame Defarge, A Tale of Two Cities - Dickens
The 3rd term is the volatile component in the short-term but its effect becomes small over very long periods. So, often, an approximation (also called Gordon Equation) is,
%TR ~ %Dividend_yield + %Earnings_growth
With broad portfolios, the market works like a great compounding machine.
"Youth is wasted on the young." How difficult it is to get young adults to USE the time they have in order to start investing, and compounding their investment over decades and decades ahead.
@Crash. Good points. My comment was directed more at young and middle aged investors. I don’t think either of the following is inconsistent with the advice @Bobpa shared: (1) gradually shifting to a more conservative allocation over the years commensurate with age or (2) allocating a small % of one’s holdings to tactical / speculative gambits - if so inclined. In addition, gradually adjusting one’s portfolio positioning relative to the highly unusual interest rate environment that has evolved in recent years (as many here have done) would seem wise. Even Dodge and Cox is in the process of reviewing / modifying their highly successful Balanced fund (DODBX) - I suspect due to that rate environment.
@hank. Great minds think alike. And I track, but do not own, DODBX. I track it because I put a friend's money in that fund. Back in 2010, she and her husband asked me to "husband" their money for them. They are just petrified of the process, the decision-making involved, and simply don't have the interest in doing the learning necessary in order to make prudent, educated choices re: investing. But let us know, please, whatever you find out about D&C's reevaluation regarding DODBX.
"Instead of focusing on finding the next Tesla — not an easy task — the approach that, in my opinion, works best for most people, most of the time, is to construct a sensible, diversified portfolio, and then to give it time to compound."
I agree and this is what I strive to do. This is simple, but not easy. Since a vast amount of investing information (both good and bad) is widely available, investors may be enticed to execute nonessential trades in order to "outsmart" the markets.
"Instead of focusing on finding the next Tesla — not an easy task — the approach that, in my opinion, works best for most people, most of the time, is to construct a sensible, diversified portfolio, and then to give it time to compound."
I agree and this is what I strive to do. This is simple, but not easy. Since a vast amount of investing information (both good and bad) is widely available, investors may be enticed to execute nonessential trades in order to "outsmart" the markets.
You hit the nail on the head. And we are certainly living "in interesting times." (@catch22 likes to employ those words.) Do I like being 20% in bonds and up to 73% in equities right now? NO. But in order to be pre-positioned for the recovery after the expected recession, that's what my stash looks like today. That's why I'm down -14% YTD. And bonds have not helped to mitigate such results. .....I'm just watching Wall Street Week. Bob Michele is recommending High Yield bonds. That's my only bond fund: TUHYX. Yes, the yields are VERY attractive. And unfortunately, in my entire investing career, I always find myself "cash-poor." So, I have to do my adding in small dribs and drabs--- apart from a customary first-of-the-year withdrawal from the IRA, annually. But if I'm still down so far when January arrives, that withdrawal will have to be postponed---- because I am able to postpone it. Thankfully, I don't need to do that in order to live.
My information source is the DODBX Fund Report published by M* on 06/16/2022.
A new balanced fund committee took over management of DODBX in May 2022. This committee began as a working group following the fund's steep losses during the 2020 bear market. In 2021, DODBX no longer had to fully mimic the stock/bond sleeves of DODGX and DODIX respectively. International stocks are now included to further diversify the portfolio. Other changes include allowing a small S&P 500 short position for protection against market selloffs and selling covered-calls on stocks that are perceived to be at/near full value.
"The increased focus on managing risk is a welcome improvement, but a longer track record of execution would increase our confidence that the changes will lead to a smoother ride going forward."
@Observant1 - Thanks for posting. Changes hadn’t yet been implemented far as I could tell when I checked the December 2021 report a while back. (But was aware of the S&P short position.)
That last line … a bit disconcerting … / Also a timely reminder, I think, that each of us invests at his / her own risk .
Other than small position on shorting of S&P500, what else can D&C do on the bond portion of the fund? YTD of D&C Income vs VG Total bond index, is -8.1% vs. -8.8%, respectively. Few variables they can use - credit quality and duration.
Nevertheless, YTD, D&C balanced fund is ahead of other value-oriented VG Wellington and Oakmark Equity Income, -7.7 vs. -13.7 and -12.3, respectively. Ironically, the balanced fund is slightly ahead of its Stock fund.
The power of compounding is huge. Let's assume 10% return per year. Investor X started investing at age 25 $1000 monthly and stopped after 10 years. Investor Y started investing 10 years later, at age 35, investing $1000 monthly for 30 years to age 65. Who will have more at age 65? Investor X will have a lot more money, investing just 10 years VS 30 years.
@Observant1 - Thanks for posting. Changes hadn’t yet been implemented far as I could tell when I checked the December 2021 report a while back. (But was aware of the S&P short position.)
That last line … a bit disconcerting … / Also a timely reminder, I think, that each of us invests at his / her own risk .
DODBX is a good fund (albeit somewhat volatile) and Dodge & Cox is a great company. The fund committee's objective is laudable and the new changes are sensible. If I owned DODBX ¹, I'd observe the impact of committee actions but wouldn't be too concerned.
¹ former/future DODIX owner, temporarily switched to stable value fund 12/31/21.
The problem with comparing investing with Archimedes' maxim, i.e., physics, is it assumes that capitalism and GDP growth are natural phenomena like gravity as opposed to human constructs that were created by humans and thus can be destroyed by humans. Gravity and the lever principle would still exist whether we did or not. Capitalism and GDP growth would not.
So is time on your side as an investor? Unlike the lever principle, the time-is-on-your-side philosophy depends on the basic premise that capitalism, and our particular winner-take-all version of capitalism, continues to dominate as an economic model. It also depends on the belief that we continue to accept GDP growth as the ultimate measure of economic success.
As opposed to a lever, if one considers income inequality like a rubber band that can only be stretched so far before either it contracts or snaps completely, then one might also suspect time might not be on your side as an investor today. Labor starts to push back, seeks higher wages, regulators step in, taxes go up to pay for a social safety net and profits contract. Or if inequality becomes bad enough and the government does nothing, labor revolts, extreme violence occurs and society disintegrates--the rubber band snapping scenario. Profits contract even worse, potentially disappear. If one also considers climate change as a legitimate threat and GDP growth increases carbon emissions, then the model of constant consumption and production that increases profits may also shift.
As a general principle of a human who is aging in time and values his life, I have never assumed time is on my side except when I've listened to Mick Jagger sing it.
Thank you @LewisBraham! What can one say? Most impressive.
Here’s the quote from @Bobpa’s post for which I expressed platitudes and which I think many others took away as his fuller intent and meaning:
"Instead of focusing on finding the next Tesla — not an easy task — the approach that, in my opinion, works best for most people, most of the time, is to construct a sensible, diversified portfolio, and then to give it time to compound."
I view that quote in totality as wise advice. I’d put the emphasis here on the “construct a sensible, diversified portfolio …” part. What I see is a lot of individual investors today buying things after they have already outperformed on the upside for an extended period (months, years); than becoming disappointed / disillusioned when that asset (predictably) trends downward; than eventually selling at a loss - only to move on to another hot fund or stock. That’s not using the advantage time allows. I don’t know how money can compound if investments are bought “high” and later sold “low”. Can’t cite any particular source, but believe it’s been shown through historical data that most fund investors fail to achieve the average returns of the funds they own over time due to frequent switching in and out.
To me the cardinal sin of my lifetime came in watching many corporate pensions disappear. Workers, some clueless about money and investing, were told they’d be better off “owning” said pension through a 401K or other defined contribution account. Put in that position time becomes much less of a friend due to the uncertainty of one’s lifetime as Larry noted. The best time frame is an “infinite” one. A well run defined benefit plan comes much closer to that definition. Managers have time on their side to a much greater degree than does a sole individual.
you guys are correct, but it seems to me that you're simply beating up on a simple maxim: given our system, and given a young-enough starting point, investors will do well, over long periods of time. Don't the "sadistics" bear this out?
you guys are correct, but it seems to me that you're simply beating up on a simple maxim: given our system, and given a young-enough starting point, investors will do well, over long periods of time. Don't the "sadistics" bear this out?
All of that depends on whether we are at an inflection point or not. This is why I think it is a serious mistake to compare the social sciences like economics and its uglier cousin finance with the hard sciences like physics. Tomorrow I can be almost certain that the law of gravity will apply if, say, Vladimir Putin stepped out of a window. I can by no means be certain that the belief that "in the long run U.S. stocks will go up" will remain true.
I also think such a fundamentalist faith in markets is an ideology rooted in mistaken ideas about humanity and history, and is, therefore dangerous. If one believes that stocks always go up eventually during one's lifetime, you could support the notion that Social Security should be privatized and linked to stocks. I think that's a terrible idea as stocks may not always go up and it makes regulating the private sector by the government virtually impossible. Imagine trying to break up a monopoly at one of the largest companies in people's Social Security accounts that would send the accounts downward.
But even as an investor I think the ideology is dangerous. Relative to human history, U.S. stock market history is short, a blip. Why should we believe it repeats when if you look at all of human history every great civilization or world super power has ended either via violent implosion/explosion or a gradual slide into decay? Otherwise, we'd all be Egyptians, Sumerians or Romans today.
The long-term U.S. stocks go up philosophy depends on some basic premises which if we're at an inflection point may not be true:
1. The U.S. remains the world global superpower. There is China.
2. Labor in the U.S. remains powerless, and capital remains triumphant. This depends on globalization, technology and government social programs--to placate labor--and government/corporate oppression--laws preventing labor activism--to remain true. There is evidence that we've reached peak globalization so the labor/wage arbitrage game corporations have played since the 1970s may be coming to an end. In other words, there is much talk about "de-globalization" and "on-shoring" today. Whether that's true or not is a vital question to investors because labor will have power again here if jobs can't just be shipped to low wage nations as easily anymore. That is the wage arbitrage of which I speak.
3. Climate change does not pose a material threat to business. It does. It is, no matter what the deniers think, and capital markets by themselves cannot solve it. It could and will beneift and hurt some sectors of the market, but long-term the growth-at-all costs model may have to change, and that may require a steady state growth or even a declining growth model imposed by government.
4. The Fed maintains control over inflation and the dollar remains the world reserve currency. This is kind of linked to the superpower question.
5. There is no violent social unrest internally or war externally that could lead to the destruction of our nation. January 6th, the BLM unrest and Trump's attempt to overthrow a democratically determined election could be viewed as preludes.
6. Technological increases in labor productivity continue. If they don't continue, then it is harder for the private sector to ignore labor's demands for greater wages.
If any of these premises shift and we are at an inflection point, then the buy and hold philosophy may not be true in the future. In other words, the idea that in the long-run stocks go up isn't science. It's history--In the past stocks went up. And it's libertarian ideology and ideology is a polite term for what the belief system is. Markets can solve all problems including labor's problems with retirement is the belief.
Wow, @LewisBraham. That is deeply, thoroughly thought-out. Thank you very much. "Past results do not guaranty future returns." Indeed. So many variables. Are we at an inflection point? It does seem to me, and it has seemed to me for a number of years already--- that the USA is in decline. Some of that is the result of inevitable factors, like the recovery of economies, post-WW 2. We have more competition. Even in my teen years, I'd heard that "The USA is going to have to get accustomed to paying more, for less." THAT certainly has been going on for decades. The dollar is worth less and less. Even when there's no stimulus, governments like to have inflation, albeit low inflation--- approx. 2%. Just something I learned along the way. ..... Then, add the money-printing stimulus in response to the various shocks to the economy (and PEOPLE!) and you get money that's worth even less. MUCH less. I think the recent stimulus was a good thing, but was WAY overdone. ......Now, add to the recipe: ridiculous amounts of money simply WASTED, and gummint money spent on defense contracts which are nothing short of overkill, "beyond the beyond." ..... "A billion here, a billion there, and pretty soon yer talking real money." Was that Proxmire? Now, the reference has become trillions.
Gov't is good and necessary. I'm not with the boneheads who are against gov't by definition. I see government's purpose as serving the needs of the people. To serve the WILL of the people is not quite the same thing, though. Often, I find the will of gov't is one screwed-up cluster fuck. That goes for both Parties, though I have more sympathy for one than the other. And that "other" Party has morphed into an Insurgency, anyhow. THAT'S what we're facing today, and it's part of the Grand, Slow, Gradual Decline of the USA on the world stage.
The 'miracle' of compounding works in all ways and can mislead the eye-closed wishful (moi?) who do not run the numbers.
In early 2009 we bought a modest house and land (with spectacular view) in one of the pricier suburbs in the country: a town with large lots, whopping property taxes, high teacher salaries (not enough that they can live here, for the most part), yada yada. An expensive state, of course,
The couple who sold it to us in 2009, after their 3y of residence, lost several hundred thou.
So. After several RE cycles, our property has increased significantly, of course. Or so I concluded.
I just figured out its 14y return rate. Which comes to ... 2.6% (plus or minus) annually.
Count yourself lucky. We lost a large amount of money on our house in CT 1987 to 2020. We got about $50,000 more than we paid for it but in the 30 years we redid two BRs, kitchen, all the windows, new roof, finished the basement, new deck and sunroom, etc.
My parents would say "so what you had to live somewhere. We never made any money on any house we owned"
I do think it’s hard to figure the true value of a house you live in as an investment. I could think of a number of different approaches to it involving repair costs, comparable savings over renting, tax deductions from mortgage interest, property tax costs, utility expense differences between houses and smaller apartments, opportunity cost from locking up your capital, etc. Maybe a primary residence shouldn’t even be thought of as an investment.
Unfortunately, @Bopa appears to have deleted most of his original content (OP) on July 31. The intellect here is so massive that a great discussion has ensued for nearly 5 months afterward.
I can only say that I’m glad I retired nearly 25 years ago to live in a home I already owned rather than relying on the vicissitudes of the rental market. Your experience(s) may differ.
Comments
+1 and Thanks. Convincing people to view it this way would seem near impossible. That’s due largely I suspect to human nature, but to a lesser extent to the intensity of the information flow today plus the potential for “instant gratification” in today’s markets.
One of my favorite quotes: “Then tell Wind and Fire where to stop, but don’t tell me.”
- Madame Defarge, A Tale of Two Cities - Dickens
%TR = %Dividend_yield + %Earnings_growth + %Change_in_P/E
The 3rd term is the volatile component in the short-term but its effect becomes small over very long periods. So, often, an approximation (also called Gordon Equation) is,
%TR ~ %Dividend_yield + %Earnings_growth
With broad portfolios, the market works like a great compounding machine.
I agree and this is what I strive to do.
This is simple, but not easy.
Since a vast amount of investing information (both good and bad) is widely available,
investors may be enticed to execute nonessential trades in order to "outsmart" the markets.
My information source is the DODBX Fund Report published by M* on 06/16/2022.
A new balanced fund committee took over management of DODBX in May 2022.
This committee began as a working group following the fund's steep losses during the 2020 bear market.
In 2021, DODBX no longer had to fully mimic the stock/bond sleeves of DODGX and DODIX respectively.
International stocks are now included to further diversify the portfolio.
Other changes include allowing a small S&P 500 short position for protection against market selloffs
and selling covered-calls on stocks that are perceived to be at/near full value.
"The increased focus on managing risk is a welcome improvement, but a longer track record
of execution would increase our confidence that the changes will lead to a smoother ride going forward."
That last line … a bit disconcerting …
Nevertheless, YTD, D&C balanced fund is ahead of other value-oriented VG Wellington and Oakmark Equity Income, -7.7 vs. -13.7 and -12.3, respectively. Ironically, the balanced fund is slightly ahead of its Stock fund.
Who will have more at age 65?
Investor X will have a lot more money, investing just 10 years VS 30 years.
DODBX is a good fund (albeit somewhat volatile) and Dodge & Cox is a great company.
The fund committee's objective is laudable and the new changes are sensible.
If I owned DODBX ¹, I'd observe the impact of committee actions but wouldn't be too concerned.
¹ former/future DODIX owner, temporarily switched to stable value fund 12/31/21.
Yes, it surely
iswas, and that's one of the big reasons that my wife and I are retired with no real monetary concerns.Where, in the last ten years or so, was a young investor supposed to do the same things that we were able to do?
So is time on your side as an investor? Unlike the lever principle, the time-is-on-your-side philosophy depends on the basic premise that capitalism, and our particular winner-take-all version of capitalism, continues to dominate as an economic model. It also depends on the belief that we continue to accept GDP growth as the ultimate measure of economic success.
As opposed to a lever, if one considers income inequality like a rubber band that can only be stretched so far before either it contracts or snaps completely, then one might also suspect time might not be on your side as an investor today. Labor starts to push back, seeks higher wages, regulators step in, taxes go up to pay for a social safety net and profits contract. Or if inequality becomes bad enough and the government does nothing, labor revolts, extreme violence occurs and society disintegrates--the rubber band snapping scenario. Profits contract even worse, potentially disappear. If one also considers climate change as a legitimate threat and GDP growth increases carbon emissions, then the model of constant consumption and production that increases profits may also shift.
As a general principle of a human who is aging in time and values his life, I have never assumed time is on my side except when I've listened to Mick Jagger sing it.
Here’s the quote from @Bobpa’s post for which I expressed platitudes and which I think many others took away as his fuller intent and meaning:
"Instead of focusing on finding the next Tesla — not an easy task — the approach that, in my opinion, works best for most people, most of the time, is to construct a sensible, diversified portfolio, and then to give it time to compound."
I view that quote in totality as wise advice. I’d put the emphasis here on the “construct a sensible, diversified portfolio …” part. What I see is a lot of individual investors today buying things after they have already outperformed on the upside for an extended period (months, years); than becoming disappointed / disillusioned when that asset (predictably) trends downward; than eventually selling at a loss - only to move on to another hot fund or stock. That’s not using the advantage time allows. I don’t know how money can compound if investments are bought “high” and later sold “low”. Can’t cite any particular source, but believe it’s been shown through historical data that most fund investors fail to achieve the average returns of the funds they own over time due to frequent switching in and out.
To me the cardinal sin of my lifetime came in watching many corporate pensions disappear. Workers, some clueless about money and investing, were told they’d be better off “owning” said pension through a 401K or other defined contribution account. Put in that position time becomes much less of a friend due to the uncertainty of one’s lifetime as Larry noted. The best time frame is an “infinite” one. A well run defined benefit plan comes much closer to that definition. Managers have time on their side to a much greater degree than does a sole individual.
I also think such a fundamentalist faith in markets is an ideology rooted in mistaken ideas about humanity and history, and is, therefore dangerous. If one believes that stocks always go up eventually during one's lifetime, you could support the notion that Social Security should be privatized and linked to stocks. I think that's a terrible idea as stocks may not always go up and it makes regulating the private sector by the government virtually impossible. Imagine trying to break up a monopoly at one of the largest companies in people's Social Security accounts that would send the accounts downward.
But even as an investor I think the ideology is dangerous. Relative to human history, U.S. stock market history is short, a blip. Why should we believe it repeats when if you look at all of human history every great civilization or world super power has ended either via violent implosion/explosion or a gradual slide into decay? Otherwise, we'd all be Egyptians, Sumerians or Romans today.
The long-term U.S. stocks go up philosophy depends on some basic premises which if we're at an inflection point may not be true:
1. The U.S. remains the world global superpower. There is China.
2. Labor in the U.S. remains powerless, and capital remains triumphant. This depends on globalization, technology and government social programs--to placate labor--and government/corporate oppression--laws preventing labor activism--to remain true. There is evidence that we've reached peak globalization so the labor/wage arbitrage game corporations have played since the 1970s may be coming to an end. In other words, there is much talk about "de-globalization" and "on-shoring" today. Whether that's true or not is a vital question to investors because labor will have power again here if jobs can't just be shipped to low wage nations as easily anymore. That is the wage arbitrage of which I speak.
3. Climate change does not pose a material threat to business. It does. It is, no matter what the deniers think, and capital markets by themselves cannot solve it. It could and will beneift and hurt some sectors of the market, but long-term the growth-at-all costs model may have to change, and that may require a steady state growth or even a declining growth model imposed by government.
4. The Fed maintains control over inflation and the dollar remains the world reserve currency. This is kind of linked to the superpower question.
5. There is no violent social unrest internally or war externally that could lead to the destruction of our nation. January 6th, the BLM unrest and Trump's attempt to overthrow a democratically determined election could be viewed as preludes.
6. Technological increases in labor productivity continue. If they don't continue, then it is harder for the private sector to ignore labor's demands for greater wages.
If any of these premises shift and we are at an inflection point, then the buy and hold philosophy may not be true in the future. In other words, the idea that in the long-run stocks go up isn't science. It's history--In the past stocks went up. And it's libertarian ideology and ideology is a polite term for what the belief system is. Markets can solve all problems including labor's problems with retirement is the belief.
Gov't is good and necessary. I'm not with the boneheads who are against gov't by definition. I see government's purpose as serving the needs of the people. To serve the WILL of the people is not quite the same thing, though. Often, I find the will of gov't is one screwed-up cluster fuck. That goes for both Parties, though I have more sympathy for one than the other. And that "other" Party has morphed into an Insurgency, anyhow. THAT'S what we're facing today, and it's part of the Grand, Slow, Gradual Decline of the USA on the world stage.
In early 2009 we bought a modest house and land (with spectacular view) in one of the pricier suburbs in the country: a town with large lots, whopping property taxes, high teacher salaries (not enough that they can live here, for the most part), yada yada. An expensive state, of course,
The couple who sold it to us in 2009, after their 3y of residence, lost several hundred thou.
So. After several RE cycles, our property has increased significantly, of course. Or so I concluded.
I just figured out its 14y return rate. Which comes to ... 2.6% (plus or minus) annually.
My parents would say "so what you had to live somewhere. We never made any money on any house we owned"
I can only say that I’m glad I retired nearly 25 years ago to live in a home I already owned rather than relying on the vicissitudes of the rental market. Your experience(s) may differ.