What Really Makes Your Retirement Accounts Grow

As far as investing goes, 2011 won't be a particularly memorable year. The Standard & Poor's 500 began the year at 1,257 and ended the year at the exact same spot. So if you began the year with $10,000 in your 401(k) and invested it in an index fund that seeks to mimic the performance of the S&P 500, you'd just have $10,000 a year later, right?

Probably not. The value of your portfolio depends on a few factors:

  1. The increase or decrease in value of your investments. Okay, so that's obvious. In the case of the S&P 500 in 2011, it ended the year where it started.
  2. Contributions or withdrawals from your accounts. If you're still saving for retirement, you make an investment every time money gets transferred from your paycheck or savings account to your 401(k) or IRA. Each investment has its own purchase price, and thus its own return. During 2011 the S&P 500 increased to 1,363 by the end of April, then dropped to 1,123 by early October, only to then rebound back to 1,257. If you invested in an S&P 500 index fund, some of the purchases you made last spring may be still underwater, but the purchases you made in the fall have so far produced a nice double-digit return.
  3. The amount of interest and dividends you receive throughout the year and what you do with that money. I've written before about how dividend growth and reinvestment are a powerful — and under-appreciated — way to grow a portfolio; it can produce a decent return even if the price of a stock goes nowhere for decades. That's because dividends grow, historically at a rate that exceeds inflation. Not every stock pays a dividend, but most of the big names do. In 2011, of the 500 companies in the S&P 500, 394 companies paid a dividend; 320 increased their dividend, 22 started paying a dividend (they weren't paying one beforehand, or it had been suspended), and only five decreased their dividend. Most investors use those dividends to buy more shares of stocks, which pay more growing dividends, which buy more shares, and so on. The same principle applies if you own bonds or bond funds, though you don't get the same type of growth in the payments.

Investors who survived the “Great Recession”
So even though the S&P 500 went nowhere in 2011, someone who kept investing in the Vanguard 500 or any other similar index fund — both through additional contributions to retirement accounts and dividend reinvestment — saw her net investment grow in value. This presumes, of course, that she stuck with the investment as it dropped almost 20% from April to October.

To take a slightly longer-term look at sticking with an investment, a recent report from Fidelity Investments illustrates the value of summoning courage in the face of a downturn. The company analyzed the returns of investors with Fidelity retirement accounts from the market decline of 2008 to 2009 through June 2011 and found the following:

  • Participants who changed their equity allocations to zero between Oct. 1, 2008, and March 31, 2009, and never jumped back into the market saw their accounts grow a measly 2%.
  • Investors who sold all their stocks, but got back into the market at any point before June 2011, enjoyed a 25% larger account balance.
  • Those who stuck with their asset allocations saw their account balances skyrocket 50%.

The analysis also compared investors who stopped contributing to their 401(k)s with those who kept on savin'. The account balances of the former grew 26%, while those of the latter ballooned 64%.

These are important lessons, since the world seems pretty scary these days. Of course, investing when everyone else is scared is what we're supposed to do. But today's risks — debt problems in Europe, falling home prices, swelling government deficits, increasingly unfunded entitlements, computers accounting for most of the trading volume — are real and unprecedented. Plus, the market isn't priced to provide extraordinary returns. I don't know exactly when, but there will be more years like 2011, even those as bad as 2008. During those times, it will be important to remember the conclusions of that Fidelity study: Stick to your allocation (except for occasional rebalancing), and keep on savin'.

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Rob+Bennett
Rob+Bennett

The thinking behind this article is rooted in the Buy-and-Hold Model for understanding how stock investing works. Under this model, future returns cannot be predicted. So we are stuck investing in stocks at all times. Robert Shiller describes a very different model (I call it “Valuation-Informed Indexing”) in his book “Irrational Exuberance.” Under this model, the money used to finance out-of-controlbull markets is being borrowed from future investors. This means that we CAN predict future returns and we can know in advance when we must lower our stock allocations to avoid wipeouts. Bull markets causes economic crises. There is not… Read more »

Courtney
Courtney

I’m not sure what you’re saying here. Particularly when you wrote “Stocks will be a wonderful asset class after the 65 percent price drop. But those invested heavily in stocks today are not going to have any money left to invest after taking a hit of that size on top of the hits they have been taking for 12 years now.”

Why does the value of my investment accounts have anything to do with the amount of money I’m not spending from my income and therefore have available to save/invest?

Rob+Bennett
Rob+Bennett

I don’t entirely understand your question, Courtney.

The object of the game is to acquire a specified portfolio size by the time you reach retirement age. If you have large amounts invested in asset classes that are providing negative returns for long time-periods, you are falling behind over the years rather than moving ahead.

Many today complain that non-stock asset classes do not provide high enough returns. But a zero return is outstanding in a time-period when stocks are providing a negative return. The differential you will enjoy over the Buy-and-Holders will produce compounding returns for many years to come.

Rob

Courtney
Courtney

Like I said in my first comment, I don’t understand the “won’t have any money left to invest” part. I obviously understand that the goal is to have a balance of $X at retirement. I am 30 and heavily invested in stocks (not 100%, but somewhere around 80% I guess). For simplicity’s sake let’s just say my investment balance is $10K. The stock market takes your presumed 65% drop. My investment balance is now maybe $5K (accounting for the fact that it’s not entirely stocks). But that doesn’t change the fact that a) my shares are still there, b) I… Read more »

Ross Williams
Ross Williams

” Under this model, the money used to finance out-of-controlbull markets is being borrowed from future investors. This means that we CAN predict future returns” Only if you can accurately recognize “out-of-controlbull markets”. The problem is that the difference between a normal bull market and one that is “out of control” is not clear except in retrospect. The real problem with this analysis is that it is “goal posting”, choosing starting and end points that support its point. If you got out of the market before the 2007 crash and back in before the recovery, you would get far better… Read more »

Rob+Bennett
Rob+Bennett

Only if you can accurately recognize “out-of-control bull markets”. The problem is that the difference between a normal bull market and one that is “out of control” is not clear except in retrospect. The real problem with this analysis is that it is “goal posting”, choosing starting and end points that support its point. I encourage you to take a look at Shiller’s research and at the 140 years of historical return data available to us today, Ross. The same rules have applied throughout that entire time-period. When we get to a P/E10 level of 25, we have 20 years… Read more »

Ross Williams
Ross Williams

“When we get to a P/E10 level of 25, we have 20 years of bad returns. There’s not one exception in the record.”

You mean three times in the last 100 years. And even that isn’t true. Because the last time was 2000 and we don’t know those results yet.

I don’t think two historic examples is a very good sample to draw firm conclusions about the future.

El Nerdo
El Nerdo

this was a nice comment, interesting to read an opposing point of view, thanks for the references.

Paweł Białecki
Paweł Białecki

I’m not a master of investments, but I have one advice for everyone – invest at the market that you KNOW. I don’t know stocks, I don’t know bonds, I don’t know real estates. So I just don’t put my money at these things. I personally know gold and silver coins market and if today I would win a million dollars, I’d know where to put them. So people, learn your market and then you will not have problems with crisises, debt problems and “scary times”.

El Nerdo
El Nerdo

Totally off-topic, but I don’t know anybody who knows coins and google doesn’t help, so I apologize if this is completely off for most readers but hey, you’re an expert, so I have to ask. I have this silver Spanish coin that I want to sell. It’s from some sunken ship or something, from 1808, tarnished and with some green spots, weights 27g. Here’s a photo I found of the same coin; http://forum.treasurenet.com/index.php?topic=281640.0 Should I clean it first or sell it as-is? If I want to keep it for future appreciation, should I have it cleaned or leave it filthy?… Read more »

sandi_k
sandi_k

DO NOT “clean” the coin. You’ll scratch it, and remove what’s called the patina. You’ll destroy its collectible value.

El Nerdo
El Nerdo

oh, cool, thanks! and what’s the best way to get it appraised? take it to a store?

whoisbiggles
whoisbiggles

Hi,

Do a search for a similiar item on eBay to get an idea of its value, before taking it to a dealer.

At least that way you will have a ballpark valuation.

El Nerdo
El Nerdo

Thanks! I looked up on ebay and they are offered from $60-$200+ ha ha. Not too accurate. One old acution with no picture shows it sold for $195. It’s clearly not worth a fortune, but I’ll bring it to dealers around just for the fun. Thanks again!

ER
ER

I agree, I continued to contribute to my fidelity 401k and even increased the % I put in to the funds. I started investing in 4th Quarter 2008 so I went in at a bottom of the markets. Waiting to see if 2012 will be a good year for those fidelity funds in terms of capital appreciation.

Grumpy
Grumpy

My experience is dividens is the only way I have made money in my S&P500 indexed fund. I have been in this S&P indexed fund for about 10 years and the fund is now 14% higher than it was 10 year ago. That is less than a 1.4% growth per year.

SamChilam
SamChilam

All this 10 years you are adding more money to your investment? or just invested some in S&P 10 years back?

Grumpy
Grumpy

I invested over a few years but about 10 years ago I stopped adding to this S&P 500 indexed fund. I have just let the money set for the last 10 years. If I remove the dividens I get the 1.4% gain per year number.

KAD
KAD

I was really skeptical about the 64% “ballooning” since October 2008 described in the last paragraphs of the article. I thought “yeah, right.” So I decided to test it. I have a 403(b) with a modestly aggressive investment strategy that I’ve been putting 11% of my paycheck into, with an 11% employer match, since 2000. I made no changes in response to the downturn of 2008, kept right on going. In preparation for this comment, which I anticipated would be critical of the 64% results, I went to my 403(b) statements. At the end of 2007 my balance was about… Read more »

chacha1
chacha1

And this is why paying attention to *your investments* and mostly ignoring “the market” can result in a much lower level of financial stress. 🙂 That was a nice surprise for you, eh? Well done in sticking with it!

Ross Williams
Ross Williams

“When we get to a P/E10 level of 25, we have 20 years of bad returns. There’s not one exception in the record.”

You mean three times in the last 100 years. And even that isn’t true. Because the last time was 2000 and we don’t know those results yet.

I don’t think two historic examples is a very good sample to draw firm conclusions about the future.

Rob+Bennett
Rob+Bennett

You mean three times in the last 100 years. This comment is a response to the #11 comment by Ross Williams. It’s four times in the past 100 years, Ross. The bull of the early 1900s brought on 20 years of poor returns. Then the bull of the late 1920s brought on 20 years of poor returns. Then the bull of the mid-60s brought on 20 years of poor returns. Then the bull of the late 1990s brought on 12 (and counting) years or poor returns. I don’t think [this] is a very good sample to draw firm conclusions about… Read more »

Ross Williams
Ross Williams

“It’s four times in the past 100 years, Ross. The bull of the early 1900s brought on 20 years of poor returns. Then the bull of the late 1920s brought on 20 years of poor returns. Then the bull of the mid-60s brought on 20 years of poor returns. Then the bull of the late 1990s brought on 12 (and counting) years or poor returns.” The “bull of the early 1900’s” the PE peaked slightly over 25 in 1901 – 110 years ago. And we have no idea what the results of the PE peak in 2000 will be. You… Read more »

Rob+Bennett
Rob+Bennett

If you bought a DOW index stock (yes, I know that doesn’t exist) in 1981 at 1024 and held those stocks, they would be worth 12 times that much today. If you had made regular investments and held them during that same period you would be ahead on the vast majority of them. And that is true fro virtually every 30 year period. There are two factors that cause stock prices to go up, Ross. One is economic growth. The gains caused by economic growth are real and lasting. Two is overvaluation. The gains caused by overvaluation are temporary and… Read more »

Ross Williams
Ross Williams

I don’t really think we should take what is written on book jackets as gospel. I am not underestimating Shiller. I just think you are misunderstanding him and drawing conclusions well beyond what his arguments support. The notion that the market will always go up is silly. No one ever believed that. The argument is that it will always goes up in the long run. That is also silly, but historically accurate. It was historically accurate for housing prices too and we have seen how that worked out. The reason the market, as a whole, will go down in the… Read more »

brooklyn money
brooklyn money

Yes, but who invests their 401K just in an S&P index fund or large cap fun? Mine is diversified, like a good retirement investor, and the “reward” for staying in and investing in an international fund, which comprises 30% of my portfolio, is not quite the same as the person who is only invested in an SP Index.

Rob+Bennett
Rob+Bennett

The stock market takes your presumed 65% drop. My investment balance is now maybe $5K (accounting for the fact that it’s not entirely stocks). This comment is a response to the #13 comment by Courtney. Your numbers are right, Courtney. I think what you may be missing (in my assessment!) is the time element. No middle-class person could hope to retire at age 65 without the compounding returns effect. You need to have that factor working for you to have any realistic hopes. If your portfolio merely retains its value or goes up a wee bit over a 20-year period,… Read more »

Ross Williams
Ross Williams

“No middle-class person could hope to retire at age 65 without the compounding returns effect.”

There are no “compounding returns” on stock investments. You buy shares, you sell shares. Your return is the difference. The point is that if you are regularly buying stock, you will buy more shares when the price is low

Rob+Bennett
Rob+Bennett

There are no “compounding returns” on stock investments. We are going to need to agree to disagree re this one, Ross. It is my view that the compounding returns phenomenon applies to stocks just as it does to all other asset classes. It’s not just the returns you obtain that matters, it’s also when you earn them. Earning a 10 percent return this year is better than earning a 10 percent return 20 years from now because in the first case you will enjoy 20 years of compounding on that return that you will not obtain in the second case.… Read more »

Ross Williams
Ross Williams

“Earning a 10 percent return this year”

You don’t earn ANY return on stock unless you sell it. You buy shares of stock. Regardless of what you paid for them or how they were valued in the interim, you get the same price when you sell them.

There is nothing wrong with treating your profit as compound interest for comparison purposes. But it is not the same thing.

Milly
Milly

One could argue that reinvested dividends are a form of compounded returns.

Ross Williams
Ross Williams

I think that is right. But there are still differences. The dividends are not based on the stock’s price, although the number of shares the dividends will purchase is.

Kacie
Kacie

We didn’t invest much for retirement at all in 2011. We put 6% to my husband’s 401k to get the match (effectively 3%). The rest of the money we put toward our house down payment fund instead of our IRA. That was a good move since it enabled us to put 20% down this year. I think if we could have, it still would have been good to keep on funding the IRAs. The money would be able to grow eventually. I’m not stressing about it too much, though. We’re back to contributing 9% to our IRAs. We’re rebalancing our… Read more »

Kurt
Kurt

Why is money management the only industry in which “studies” with self-promoting conclusions are given the credence of, say, an independent academic study? I mean, if Ford released a study concluding that people who buy cars are more successful than people who don’t, would it be taken seriously or regarded as just marketing? The latter, of course. But when Fidelity (in this case) says investors should behave in a way that–just coincidentally, right?–also happens to benefit Fidelity, we’re supposed to accept that as serious investment advice, not just money management industry marketing? Why? I’m not saying Fidelity’s study is flawed–I… Read more »

Nicole
Nicole

The academic studies say to go with Vanguard index funds, often they say target-date Vanguard index funds. Debbie M is right– fees and diversification are what’s important.

John | Married (with Debt)
John | Married (with Debt)

Unfortunately the value of your portfolio also depends on the ability of politicians and bureaucrats across the globe to look to the future and do the right thing.

I don’t know about you, but that scares me to death.

The only strong retirement portfolio is a paid-for house with solar and wind power, some land with running water and a well, and a ranch with a garden and livestock.

How else can you truly secure your golden years?

Elizabeth
Elizabeth

That’s assuming the water table stays stable and uncontaminated and people stay healthy enough to tend the land, stock, etc. (My grandfather had to give up his expansive gardens at 80, and he had no health issues.)

Interesting perspective though 🙂

John | Married (with Debt)
John | Married (with Debt)

Thanks, Elizabeth! Health care and being healthy is definitely one of the top concerns facing people looking to go “back to the land”

Kingston
Kingston

Better make sure that well isn’t near fracking activity.

william
william

Slow and steady seems to be the key to retirement with no lasting debt. Also, getting used to living a frugal and minimalist lifestyle will focus needed energy on relationships rather than the accumulation of things.

Krantcents
Krantcents

Good points! Dividends and capital gains reinvestment can grow a portfolio in a stagnant economy.

MelodyO
MelodyO

I’m enjoying the stock market strategy debates in this thread very much, but every time this comes up it reminds me why I have my investments divided amongst mutual funds/real estate/small business. Barring a zombie apocalypse, I’m golden. :0P

Rob+Bennett
Rob+Bennett

[i]There is nothing wrong with treating your profit as compound interest for comparison purposes. But it is not the same thing.[/i] Say that I have $100,000 invested in stocks. And I believe based on a study of the academic research that we are going to see a 65 percent price drop sometime over the next few years. So I take that $100,000 out of stocks and invest it in CDs earning a return of 2 percent real. Then say that stock prices do in fact fall by 65 percent three years down the road. And then I put the money… Read more »

Ross Williams
Ross Williams

“Then say that stock prices do in fact fall by 65 percent three years down the road. And then I put the money back in stocks. And from that point forward stocks earn an average return of 15 percent real for the next 10 years.” You will have more shares by buying low. The amount more you will make when you sell depends entirely on how many more shares you bought. It has nothing to do with compounding. But you hit the nose on the head. To make out from this you need to be able to anticipate not only… Read more »

Ross Williams
Ross Williams

Just to be clear on the “compounding”. If I invest $1000 buy and get 90 shares and you invest $1000 and buy 100 shares, I will make 10% less if we both sell all our shares at the same time. It doesn’t matter AT ALL whether you bought the shares ten years before me, ten years after me or the same day.

Debbie M
Debbie M

“…Then say that stock prices do in fact fall by 65 percent three years down the road.” That’s the tricky part. If things actually did what you expected, of course you are right. In 1996 it was clear that the market was way overvalued and it was not a good time to buy or hold. However, the market continued climbing for four additional years. Similarly, when the Japanese market plummeted a while back, it was obviously time to buy, buy, buy. Only that market stayed bad for many, many years. Just because the market is overvalued does not mean you… Read more »

Rob+Bennett
Rob+Bennett

Just because the market is overvalued does not mean you have any clue when it will fall.

Just for the record, we are in 100 percent agreement re this, Debbie.

I do not believe that it is possible for anyone to say what the market will do next week, next month or next year.

The research shows that it is only when you go 10 years out that it becomes possible to make statistically valid predictions of future returns.

Rob

Rob+Bennett
Rob+Bennett

I am not underestimating Shiller. I just think you are misunderstanding him and drawing conclusions well beyond what his arguments support. You are of course entitled to your opinion, Ross. And it is a good idea for others to be skeptical of what I say too. I am some fellow whose claim to expertise is that he figured out how to get stuff posted to a discussion thread on a blog. If there are people reading these words who think there might be some value in what I say, I invite you to go to the home page of my… Read more »

Doug
Doug

I say we all take everything out and watch it crash. It’s fundamentally broken and corrupt and to participate in continuing the game just extends it. It’s not a free market nor a capitalist system that we have.

John | Married (with Debt)
John | Married (with Debt)

You hit on something important here.

We don’t live in a capitalist or free market society.

Conservatives like to say we are marching towards socialism, but we are already partly there.

What we have currently is a hybrid of capitalism and socialism – but ONLY the worst parts of each.

The profits are privatized and the losses are socialized.

This is a recipe for disaster and why so many people are upset these days.

Courtney
Courtney

I believe this is called ‘corporatism’.

Rob+Bennett
Rob+Bennett

It has nothing to do with compounding. We still don’t see eye to eye re this one, Ross. My take is that your money earns money. The more money you have working for you in your early years, the better off you will be in your later years. To make out from this you need to be able to anticipate not only the upside, which you apparently think was 2000, but also accurately predict the downside. If you sold in the late 90′s when the PE first hit 25, you are still waiting for the bottom and, depending on your… Read more »

Ross Williams
Ross Williams

“I sold all my stocks in 1996 and put my money in TIPS and IBonds paying 3.5 percent real. The last time I checked the numbers, I was ahead of the game for having done so.” The DOW was under 5000 in 1996, it is almost to 12,500 now. That is a 150% increase and 3.5% compounded annually gives you about 60% total return. And getting 3.5% on a bond or any other fixed interest investment these days means taking on a lot of risk. What is clear is that you have very strong faith that eventually, before you die,… Read more »

Debbie M
Debbie M

A fourth important factor is how much you pay in fees. That’s why it’s better to use index funds over managed funds (way cheaper) and to keep your turnover low (fewer fees). Of course staying out of the market, you get to pay zero fees.

Rob+Bennett
Rob+Bennett

Most people aren’t that stubborn.

I think that’s a fair comment, Ross.

I’m a go-along-to-get-along type guy on most issues. But my father once told me that, when I think I am right about something important, I am like steel. It’s probably for others to say whether that is a good trait or not. I’m stuck with it in either event.

And my poor wife! Please pray for her!

Rob

Shilpan
Shilpan

I have grown one of my self IRA accounts from $21,000 to $27,800 this year simply by investing in companies run by great leaders like AAPL, GOOG, CMG and BIDU.

I am using a personal approach to combine technical analysis along with fundamentals to buy and hold stock for 10-20% appreciation in my IRA account. It has worked well this year.

It remains to be seen if I can produce same result in 2012 or not.

brooklyn money
brooklyn money

I think this Shilpan, is a much smarter play than index investing buy/hold.

Julie Gaudet
Julie Gaudet

Investing in your retirement is not a quick turn investment. During the course of your lifetime the reality is that there will be ups and downs. The market has proven itself to be cyclical and not for the weak of heart. Riding out the lows and still investing your hard earned dollars is hard but can prove to be very rewarding as you will be purchasing at some of the lowest rates imaginable and when things turn around you’ll reap the rewards. Now it is important to take your life stage in mind, if retirement is right around the corner… Read more »

Carlyle
Carlyle

If there are people reading these words who think there might be some value in what I say, I invite you to go to the home page of my blog (I believe that clicking on my name will take you there) and reading the “People Are Talking” feature that runs down the left-hand side of the home page of the blog. There are over 100 comments there (with links to where the comment was made) of people who have found great value in my work. And I invite you to go here: http://www.s152957355.onlinehome.us/cgi-bin/yabb2/YaBB.pl?num=1189390571/4#4 where you’ll find that most of those… Read more »

Rob+Bennett
Rob+Bennett

where you’ll find that most of those people had their words mischaracterized, misquoted, or taken out of context by Mr. Bennett as supporting his “work” when in fact they did not. There are indeed Buy-and-Holders who have made such claims. I encourage those interested in learning the realities of this matter to check things out for themselves. You can look at the words that appear at the link I provide and at the words that appear at the link provided by Carlyle and determine for yourself who you believe is telling the straight story. Buy-and-Hold is an intensely emotional strategy.… Read more »

Carlyle
Carlyle

I sold all my stocks in 1996 and put my money in TIPS and IBonds paying 3.5 percent real. The last time I checked the numbers, I was ahead of the game for having done so. If in 1996, one had instead invested $1,000 in Vanguard’s Wellington fund they would have seen their investment grow to $3,508 at year-end 2011, for Balanced Index Fund $2,856, Star Fund $3,139, and for the Coffeehouse Portfolio $3,200. I think they all did rather well “in the game.” As did many others Lazy “buy-hold-rebalance” Portfolios. These results above were for lump sum investments. More… Read more »

Carlyle
Carlyle

Then why are we in an economic crisis, Carlyle?
Several different factors, Mr. Bennett. All related to home financing, not buy-hold-rebalance investment stratagies as you imagine.

Rob+Bennett
Rob+Bennett

Several different factors, Mr. Bennett. All related to home financing, not buy-hold-rebalance investment stratagies as you imagine. Are you sure, Carlyle? What if you are wrong? No one knows everything. The Buy-and-Holders have this attitude that they have it all figured out and they can never acknowledge a mistake. I think Buy-and-Hold is a huge mistake that has caused a major financial crisis and that that financial crisis is going to worsen if we don’t all get about the business of working together to fix the mistake. You are entitled to your opinion. And I am entitled to mine. I… Read more »

Ross Williams
Ross Williams

Apparently Mr. Bennett took his money out of the market 15 years ago and is still waiting for the collapse that will send it low enough to warrant buying stock again. If he is right, he will save a lot of money when the market finally tanks and make a lot of money if it recovers again. If he is wrong, he will still be waiting in another 15 years. Its not really that much different than people waiting to win the lottery, expecting the apocalypse or believing the world will end in December. If they are wrong in the… Read more »

Rob+Bennett
Rob+Bennett

If he is right, he will save a lot of money when the market finally tanks and make a lot of money if it recovers again. If he is wrong, he will still be waiting in another 15 years. I think that’s a fair statement, Ross. You are properly describing both the potential upside and the potential downside. Buy-and-Hold was developed by serious, smart and good people. If those people got it right, Buy-and-Hold is the way to go. I don’t say different. What I think you are missing is that the same applies from the other perspective. I sincerely… Read more »

Carlyle
Carlyle

They see no gains for 12 years and they blame the economy instead of their investment strategy. Instead of Mr. Bennett’s opinions, let us instead look at facts. Simba’s spreadsheat for backtesting over at Bogleheads contains data from 1985-2010 for 25 Lazy Portfolios. As he’s not yet updated the spreadsheat to include 2011 returns, I’ll use 2010 as the endpoint for the last 12 years. Rather than no gain for the last 12 year period, we see that CAGR for the 25 portlolios ranged from a high of 8.89% to a low of 3.87%. Let’s look at just four of… Read more »

Rob+Bennett
Rob+Bennett

As often is the case when examining Mr. Bennett’s opinions, we see in this instance as well that his opinion is unencumbered by any factual evidence. Please take a moment to read those words back to yourself and ask yourself if you want to represent your position through the use of that sort of tone. It doesn’t add. It subtracts. Now — You say: “Simba’s spreadsheat for backtesting over at Bogleheads contains data from 1985-2010 for 25 Lazy Portfolios.” Do you not see the problem there? Stocks were priced well in 1985. It is not until 1996 that stock prices… Read more »

Carlyle
Carlyle

“As often is the case when examining Mr. Bennett’s opinions, we see in this instance as well that his opinion is unencumbered by any factual evidence.” Please take a moment to read those words back to yourself and ask yourself if you want to represent your position through the use of that sort of tone. It doesn’t add. It subtracts. Mr. Bennett, I can both add and subtract. If you cannot, I would at least hope you might have enough familiarity with arithmetic to be able to both observe and also to comprehend that I’ve shown your opinion that buy-hold-rebalance… Read more »

Rob+Bennett
Rob+Bennett

That the Bogleheads have no desire to have their conversations constantly disrupted by Rob Bennett. There are a good number in that community who feel that way, Carlyle. That’s a fact. They are all Buy-and-Holders. That’s also a fact. A good number of non-Buy-and-Holders there told me that I was one of their favorite posters ever. And they said similar things about other posters who pointed out the dangers with Buy-and-Hold strategies. The Buy-and-Holders who felt the way you do often employed the same tone you employ in the words above. All of this tells a tale, in my assessment.… Read more »

Carlyle
Carlyle

Again, using the same four sample portfolios from my example above. [Please do feel free to go to the spreadsheat and check out the other portfolios at your convenience.] For the 15 year period beginning in 1996 and ending in 2010 (spreadsheat not yet updated with 2011 returns), Vanguard’s Wellington Income Fund shows average annual returns of 9.10% (8.45% CAGR) and $10,000 invested in 1996 would have grown to $33,752 (Total Rebalanced Nominal) or $23,637 (Total Rebalanced Real) by year-end 2010. Bill Bernstein’s No Brainer Portfolio; 8.63%/7.52%, $29,683, $20,788. Bill Schultheis’ Coffeehouse Portfolio; 8.41%/7.84%, $31,039, $21,737. Scott Burns’ Couch Potato… Read more »

Rob+Bennett
Rob+Bennett

I want you to get past your hostility so that you can understand the answers I give to your questions, Carlyle. We are not lawyers in a courtroom placed in circumstances in which, if one person wins, the other loses. We are both on the same side. If we learn something new about how investing works, we both (and lots and lots and lots of others) win. You are cherry-picking results, Carlyle. The proper way to check whether Buy-and-Hold works is to test what the Buy-and-Holders said would work at the time they were promoting Buy-and-Hold. The Buy-and-Holders for many… Read more »

Carlyle
Carlyle

I sold all my stocks in 1996 and put my money in TIPS and IBonds paying 3.5 percent real. The last time I checked the numbers, I was ahead of the game for having done so. Let’s say instead you’d purchased shares in Vanguard’s Wellington Income Fund. A $10,000 investment in 1996 would have grown to $33,752 by year end 2010. If we now have the 65% drop in stocks you say is imminent, then the value of your holdings would decrease by $13,163 (Wellington holds 60% stocks for a dollar total of $20,251; 65% of $20,251 equals $13,163) leaving… Read more »

Carlyle
Carlyle

No Mr. Bennett, cherry picking is when you look at the historical returns record and based on that data, determine what would have been the optimal level of stocks to hold at each particular PE10 level and what PE10 level had proved to be the most advantageous to use as a signal for switching between stocks and fixed income. You know, a entirely hypothetical and backwards looking project. Like the one used to construct valuation informed investing.

Carlyle
Carlyle

Can we count on your support?
No.

Rob+Bennett
Rob+Bennett

Are you able to address the emotional aspect of the question, Carlyle? Say that you are 100 percent right in everything you say and that I am 100 percent wrong in everything I say. How do you explain the intense emotionalism that comes through in all your posts? If people talked this way about any other subject, other people in the room would take note of that, no? Why don’t they take note of it when the subject is Buy-and-Hold Investing? I think it’s because LOTS of us are caught up in the emotionalism inherent in this strategy and we… Read more »

Carlyle
Carlyle

Oh, I understand perfectly Mr. Bennett. Or should I say Hocus? I have some familiarity with you. I have posed questions to you that you were unable or unwilling to answer. Invariably in any discussion you’re involved with, there comes a point when faced with factual evidence that contradicts your various assumptions you begin a routine of circular arguments quickly followed by the assertion that the other party is being emotional. The psychological term for that is projection. Again, since I’m familiar with you and your behavioral patterns, I know your ego compels you to always get in a last… Read more »

Rob+Bennett
Rob+Bennett

Oh, I understand perfectly Mr. Bennett. Or should I say Hocus? I don’t understand this one, Carlyle. You can call me “Rob” if you like. If the “Mr. Bennett” thing makes you happy, that’s accurate. “Hocus” is a screen-name I used for a long time on a number of discussion boards. That’s accurate enough too, but it’s sort of dated. I know your ego compels you to always get in a last word Last words should not be an issue on blog threads. The way it should work is that we both get to express our point of view. We… Read more »

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