Will BND return be negative in 2022

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
CraigTester
Posts: 1469
Joined: Wed Aug 08, 2018 6:34 am

Re: Bonds are for safety during stock market declines

Post by CraigTester »

canadianbacon wrote: Mon Jan 17, 2022 9:08 am
CraigTester wrote: Mon Jan 17, 2022 8:33 am Can you lay out your example in a way similar to what I did above, so we can look at it....?
When the $2 coupon bond goes on sale for the original face value, the $1 coupon bond is now trading at a discount, so the yield of the two bonds, all else being equal (issuer, bond rating, duration) is going to be about the same in an efficient market.

e.g.
1) Bond 1, $1 coupon, 10 year duration, price $100.
2) One day later, rates go up 1%, Bond 1 loses 10% of its value to $90.
3) Bond 2 is issued the same day, $2 coupon, 10 year duration, price $100.

Expected return of bond 1 over the next 10 years: $10 in coupons, $10 to get back to face value = $20
Expected return of bond 2 over the next 10 years: $20 in coupons = $20

You need to keep your bond to maturity though, because while the return in the end is the same, it will not be the same at all points of the 10 years.
I think I see the disconnect.

Expected return of bond 1 is $10 in coupon payments, and then return of $100 principle at maturity.
Expected return of bond 2 is $20 in coupon payments, then return of $100 principle at maturity.

P.S. What might get confusing is that the "current" price of bond 1 will reset to ~$90 when rates go up by 1%, and then slowly grow to $100 at maturity. But the $10 coupon payments don't change.
User avatar
canadianbacon
Posts: 676
Joined: Sun Nov 10, 2019 9:04 pm

Re: Bonds are for safety during stock market declines

Post by canadianbacon »

CraigTester wrote: Mon Jan 17, 2022 9:44 am
canadianbacon wrote: Mon Jan 17, 2022 9:08 am
CraigTester wrote: Mon Jan 17, 2022 8:33 am Can you lay out your example in a way similar to what I did above, so we can look at it....?
When the $2 coupon bond goes on sale for the original face value, the $1 coupon bond is now trading at a discount, so the yield of the two bonds, all else being equal (issuer, bond rating, duration) is going to be about the same in an efficient market.

e.g.
1) Bond 1, $1 coupon, 10 year duration, price $100.
2) One day later, rates go up 1%, Bond 1 loses 10% of its value to $90.
3) Bond 2 is issued the same day, $2 coupon, 10 year duration, price $100.

Expected return of bond 1 over the next 10 years: $10 in coupons, $10 to get back to face value = $20
Expected return of bond 2 over the next 10 years: $20 in coupons = $20

You need to keep your bond to maturity though, because while the return in the end is the same, it will not be the same at all points of the 10 years.
I think I see the disconnect.

Expected return of bond 1 is $10 in coupon payments, and then return of $100 principle at maturity.
Expected return of bond 2 is $20 in coupon payments, then return of $100 principle at maturity.

P.S. What might get confusing is that the "current" price of bond 1 will reset to ~$90 when rates go up by 1%, and then slowly grow to $100 at maturity. But the $10 coupon payments don't change.
Right, so that’s why you chill out about rate increases if you are holding your bond to maturity. What you care about more is inflation and default risk, which would be the same for both bonds. You might also care about call risk, which only applies to some bonds, but which would be more likely for the $2 coupon bond.
Bulls make money, bears make money, pigs get slaughtered.
User avatar
HomerJ
Posts: 21246
Joined: Fri Jun 06, 2008 12:50 pm

Re: Bonds are for safety during stock market declines

Post by HomerJ »

CraigTester wrote: Mon Jan 17, 2022 8:28 am So far the bond Market has not priced this in, but it is what the FED is saying they intend to do.
What in the world makes you believe that statement above?

Are you the only one who listened to the FED?

Look, I agree with you that CDs\cash is a reasonable place for safe money right now. Yields are indeed low for both bonds and CDs.

But I disagree that you can determine the relative odds if bonds will do worse or better than cash\CDs this year.

Since the difference probably won't be much, it may not matter. But you keep fooling yourself that market-timing is possible.

And, for some reason, you're determined to get us to agree with you that market-timing is possible.
"The best tools available to us are shovels, not scalpels. Don't get carried away." - vanBogle59
User avatar
aj76er
Posts: 1178
Joined: Tue Dec 01, 2015 10:34 pm
Location: Austin, TX

Re: Will BND return be negative in 2022

Post by aj76er »

NoRegret wrote: Sun Jan 16, 2022 12:04 pm
ebeb wrote: Sun Jan 09, 2022 7:35 pm Looking at Vanguard Total Bond Market fund from 1987 to 2021 there have been 5 years where annual returns were negative: 1994, 99, 2013, 18, 21 but never two consecutive negative years. What do bond enthusiasts think will be BND return in 2022 based on current fed rate hike prospects. :D
BND return may indeed be negative for 1H, but I’m leaning towards it ending the year well. I’ll be interested in the long end if the 10y yield gets up to 2.5%.
Why wait? BNDW currently has an SEC yield of 2.5%. And it’s duration is only 7yrs.
"Buy-and-hold, long-term, all-market-index strategies, implemented at rock-bottom cost, are the surest of all routes to the accumulation of wealth" - John C. Bogle
CraigTester
Posts: 1469
Joined: Wed Aug 08, 2018 6:34 am

Re: Bonds are for safety during stock market declines

Post by CraigTester »

canadianbacon wrote: Mon Jan 17, 2022 10:01 am
CraigTester wrote: Mon Jan 17, 2022 9:44 am
canadianbacon wrote: Mon Jan 17, 2022 9:08 am
CraigTester wrote: Mon Jan 17, 2022 8:33 am Can you lay out your example in a way similar to what I did above, so we can look at it....?
When the $2 coupon bond goes on sale for the original face value, the $1 coupon bond is now trading at a discount, so the yield of the two bonds, all else being equal (issuer, bond rating, duration) is going to be about the same in an efficient market.

e.g.
1) Bond 1, $1 coupon, 10 year duration, price $100.
2) One day later, rates go up 1%, Bond 1 loses 10% of its value to $90.
3) Bond 2 is issued the same day, $2 coupon, 10 year duration, price $100.

Expected return of bond 1 over the next 10 years: $10 in coupons, $10 to get back to face value = $20
Expected return of bond 2 over the next 10 years: $20 in coupons = $20

You need to keep your bond to maturity though, because while the return in the end is the same, it will not be the same at all points of the 10 years.
I think I see the disconnect.

Expected return of bond 1 is $10 in coupon payments, and then return of $100 principle at maturity.
Expected return of bond 2 is $20 in coupon payments, then return of $100 principle at maturity.

P.S. What might get confusing is that the "current" price of bond 1 will reset to ~$90 when rates go up by 1%, and then slowly grow to $100 at maturity. But the $10 coupon payments don't change.
Right, so that’s why you chill out about rate increases if you are holding your bond to maturity. What you care about more is inflation and default risk, which would be the same for both bonds. You might also care about call risk, which only applies to some bonds, but which would be more likely for the $2 coupon bond.
Did you somehow miss the point that Bond 2 has a much better outcome than bond 1?
Topic Author
ebeb
Posts: 658
Joined: Sat Dec 23, 2017 1:18 pm

Re: Will BND return be negative in 2022

Post by ebeb »

nisiprius
…The price of the Vanguard Total Bond Market fund since inception has only grown from $10/share to $11.31/share, yet a $10,000 investment would have grown, not to $11,310 but to $68,000. Therefore, any analysis that is looking only at bond prices is missing the whole point of owning bonds, and is seriously misleading for anything but very short periods of time.
[/quote]
Close price adjusted for splits:
VBMFX in 1987 was priced $10 and in 2022 is $10.99 with highest price $11.77 in jun 2020 and lowest in apr 1988 $9.05 and seems to hang around mostly in $10+/- range.
BND in 2007 was priced $74.77 and in 2022 is $83.31 with highest price $89.46 in jun 2020 and lowest in sep 2008 $73.13 and seems to hang around mostly in $80+/- range.

Say I bought $80 BND and $80 MMF and keep 7 years:
For BND assuming 1.6% distribution and 1% higher over MMF (.6% interest) per year and 1% rate rise so it falls $80-6.8= 73.2*(1+0.016)^7yrs=81.8+6.8(once it reverts back)=88.6 money in pocket after 7 yrs.
For MMF $80*(1+.006)^7yrs= 83.42 money in pocket after 7 yrs.

This is very rough calculation since rates may rise much higher and uncertain whether BND reverts back price. Is this math wrong :beer .
80% VOO | 20% BND+TBILL+CASH | Don't believe Nobody because Nobody knows nothin' - Anon
User avatar
canadianbacon
Posts: 676
Joined: Sun Nov 10, 2019 9:04 pm

Re: Bonds are for safety during stock market declines

Post by canadianbacon »

CraigTester wrote: Mon Jan 17, 2022 10:51 am
canadianbacon wrote: Mon Jan 17, 2022 10:01 am
CraigTester wrote: Mon Jan 17, 2022 9:44 am
canadianbacon wrote: Mon Jan 17, 2022 9:08 am
CraigTester wrote: Mon Jan 17, 2022 8:33 am Can you lay out your example in a way similar to what I did above, so we can look at it....?
When the $2 coupon bond goes on sale for the original face value, the $1 coupon bond is now trading at a discount, so the yield of the two bonds, all else being equal (issuer, bond rating, duration) is going to be about the same in an efficient market.

e.g.
1) Bond 1, $1 coupon, 10 year duration, price $100.
2) One day later, rates go up 1%, Bond 1 loses 10% of its value to $90.
3) Bond 2 is issued the same day, $2 coupon, 10 year duration, price $100.

Expected return of bond 1 over the next 10 years: $10 in coupons, $10 to get back to face value = $20
Expected return of bond 2 over the next 10 years: $20 in coupons = $20

You need to keep your bond to maturity though, because while the return in the end is the same, it will not be the same at all points of the 10 years.
I think I see the disconnect.

Expected return of bond 1 is $10 in coupon payments, and then return of $100 principle at maturity.
Expected return of bond 2 is $20 in coupon payments, then return of $100 principle at maturity.

P.S. What might get confusing is that the "current" price of bond 1 will reset to ~$90 when rates go up by 1%, and then slowly grow to $100 at maturity. But the $10 coupon payments don't change.
Right, so that’s why you chill out about rate increases if you are holding your bond to maturity. What you care about more is inflation and default risk, which would be the same for both bonds. You might also care about call risk, which only applies to some bonds, but which would be more likely for the $2 coupon bond.
Did you somehow miss the point that Bond 2 has a much better outcome than bond 1?
Not going to waste more time on this.

Edit: actually I’ll be a sucker and post one more time. What you are saying is sort of like saying, if you knew a stock was going to drop 5% tomorrow, wouldn’t you be better off waiting a day to buy it? The answer is yes. But you don’t have a time machine so you can’t do that.

Anyway I’ll assume you aren’t trolling but I am going to stop here. Good luck.
Last edited by canadianbacon on Mon Jan 17, 2022 11:06 am, edited 2 times in total.
Bulls make money, bears make money, pigs get slaughtered.
Da5id
Posts: 5058
Joined: Fri Feb 26, 2016 7:20 am

Re: Will BND return be negative in 2022

Post by Da5id »

aj76er wrote: Mon Jan 17, 2022 10:43 am
NoRegret wrote: Sun Jan 16, 2022 12:04 pm
ebeb wrote: Sun Jan 09, 2022 7:35 pm Looking at Vanguard Total Bond Market fund from 1987 to 2021 there have been 5 years where annual returns were negative: 1994, 99, 2013, 18, 21 but never two consecutive negative years. What do bond enthusiasts think will be BND return in 2022 based on current fed rate hike prospects. :D
BND return may indeed be negative for 1H, but I’m leaning towards it ending the year well. I’ll be interested in the long end if the 10y yield gets up to 2.5%.
Why wait? BNDW currently has an SEC yield of 2.5%. And it’s duration is only 7yrs.
Hmm. On Vanguards site
BNDX has SEC yield of 0.67%
BND has SEC yield of 1.68%
BNDW has SEC yield of 2.5%

Given that BNDW is composed of BND and BNDX, that is an amazing diversification benefit. Or something is wrong on the site. I'll guess something is wrong on the site.
drk
Posts: 3927
Joined: Mon Jul 24, 2017 10:33 pm

Re: Will BND return be negative in 2022

Post by drk »

Da5id wrote: Mon Jan 17, 2022 10:56 am Given that BNDW is composed of BND and BNDX, that is an amazing diversification benefit. Or something is wrong on the site. I'll guess something is wrong on the site.
It's just an artifact of the fund structure and how SEC yield is calculated. BNDX's yield does not include income from currency hedging, while BNDW's yield includes the actual distributions it receives from BND and BNDX.
A useful razor: anyone asking about speculative strategies on Bogleheads.org has no business using them.
Da5id
Posts: 5058
Joined: Fri Feb 26, 2016 7:20 am

Re: Will BND return be negative in 2022

Post by Da5id »

drk wrote: Mon Jan 17, 2022 11:06 am
Da5id wrote: Mon Jan 17, 2022 10:56 am Given that BNDW is composed of BND and BNDX, that is an amazing diversification benefit. Or something is wrong on the site. I'll guess something is wrong on the site.
It's just an artifact of the fund structure and how SEC yield is calculated. BNDX's yield does not include income from currency hedging, while BNDW's yield includes the actual distributions it receives from BND and BNDX.
Ah, thanks. Was wondering. Very odd and misleading disconnect.
CraigTester
Posts: 1469
Joined: Wed Aug 08, 2018 6:34 am

Re: Bonds are for safety during stock market declines

Post by CraigTester »

canadianbacon wrote: Mon Jan 17, 2022 10:56 am
CraigTester wrote: Mon Jan 17, 2022 10:51 am
canadianbacon wrote: Mon Jan 17, 2022 10:01 am
CraigTester wrote: Mon Jan 17, 2022 9:44 am
canadianbacon wrote: Mon Jan 17, 2022 9:08 am

When the $2 coupon bond goes on sale for the original face value, the $1 coupon bond is now trading at a discount, so the yield of the two bonds, all else being equal (issuer, bond rating, duration) is going to be about the same in an efficient market.

e.g.
1) Bond 1, $1 coupon, 10 year duration, price $100.
2) One day later, rates go up 1%, Bond 1 loses 10% of its value to $90.
3) Bond 2 is issued the same day, $2 coupon, 10 year duration, price $100.

Expected return of bond 1 over the next 10 years: $10 in coupons, $10 to get back to face value = $20
Expected return of bond 2 over the next 10 years: $20 in coupons = $20

You need to keep your bond to maturity though, because while the return in the end is the same, it will not be the same at all points of the 10 years.
I think I see the disconnect.

Expected return of bond 1 is $10 in coupon payments, and then return of $100 principle at maturity.
Expected return of bond 2 is $20 in coupon payments, then return of $100 principle at maturity.

P.S. What might get confusing is that the "current" price of bond 1 will reset to ~$90 when rates go up by 1%, and then slowly grow to $100 at maturity. But the $10 coupon payments don't change.
Right, so that’s why you chill out about rate increases if you are holding your bond to maturity. What you care about more is inflation and default risk, which would be the same for both bonds. You might also care about call risk, which only applies to some bonds, but which would be more likely for the $2 coupon bond.
Did you somehow miss the point that Bond 2 has a much better outcome than bond 1?
Not going to waste more time on this.

Edit: actually I’ll be a sucker and post one more time. What you are saying is sort of like saying, if you knew a stock was going to drop 5% tomorrow, wouldn’t you be better off waiting a day to buy it? The answer is yes. But you don’t have a time machine so you can’t do that.

Anyway I’ll assume you aren’t trolling but I am going to stop here. Good luck.
Well, if that's your takeaway, it is best we stop here.... Good luck....
CraigTester
Posts: 1469
Joined: Wed Aug 08, 2018 6:34 am

Re: Bonds are for safety during stock market declines

Post by CraigTester »

HomerJ wrote: Mon Jan 17, 2022 10:33 am
CraigTester wrote: Mon Jan 17, 2022 8:28 am So far the bond Market has not priced this in, but it is what the FED is saying they intend to do.
What in the world makes you believe that statement above?

Are you the only one who listened to the FED?

Look, I agree with you that CDs\cash is a reasonable place for safe money right now. Yields are indeed low for both bonds and CDs.

But I disagree that you can determine the relative odds if bonds will do worse or better than cash\CDs this year.

Since the difference probably won't be much, it may not matter. But you keep fooling yourself that market-timing is possible.

And, for some reason, you're determined to get us to agree with you that market-timing is possible.
I guess I just keep trying to understand how people are making decisions....that genuinely don't appear to make sense.

And if I see something that doesn't seem to make sense, I ask about it....

Worst case, we agree to disagree.

Best case, somebody learns something.

Big picture, my theory is that the FED has so distorted historical relationships that there is a LOT that doesn't make sense right now, in ALL risk asset pricing in US markets...

This turns out to have created a perfect backdrop for the Boglehead philosophy to thrive....

And that's great.... But I genuinely don't believe it is sustainable.

But as long as the self-fulfilling prophecy of people proceeding anyway continues, it will continue.....
User avatar
HomerJ
Posts: 21246
Joined: Fri Jun 06, 2008 12:50 pm

Re: Bonds are for safety during stock market declines

Post by HomerJ »

CraigTester wrote: Mon Jan 17, 2022 11:28 am I guess I just keep trying to understand how people are making decisions....that genuinely don't appear to make sense.
See, here's where you should start to figure out that you can't predict the future. Since you don't even understand what is happening NOW.
"The best tools available to us are shovels, not scalpels. Don't get carried away." - vanBogle59
CraigTester
Posts: 1469
Joined: Wed Aug 08, 2018 6:34 am

Re: Bonds are for safety during stock market declines

Post by CraigTester »

HomerJ wrote: Mon Jan 17, 2022 1:54 pm
CraigTester wrote: Mon Jan 17, 2022 11:28 am I guess I just keep trying to understand how people are making decisions....that genuinely don't appear to make sense.
See, here's where you should start to figure out that you can't predict the future. Since you don't even understand what is happening NOW.
If the future of US asset pricing resembles the bulk of the last 100 years or so, I am very confident in my ability to understand what is very likely to happen...

However, I will concede that if it continues to reflect "just" the last couple years, I will continue to scratch my chin.

P.S. Aren't you glad you met me, at least you're not going to take a bath in BND with 60% of your portfolio now....in exchange for a 0.95% spread :sharebeer
NoRegret
Posts: 505
Joined: Sat Dec 16, 2017 1:00 am
Location: California

Re: Will BND return be negative in 2022

Post by NoRegret »

aj76er wrote: Mon Jan 17, 2022 10:43 am
NoRegret wrote: Sun Jan 16, 2022 12:04 pm
ebeb wrote: Sun Jan 09, 2022 7:35 pm Looking at Vanguard Total Bond Market fund from 1987 to 2021 there have been 5 years where annual returns were negative: 1994, 99, 2013, 18, 21 but never two consecutive negative years. What do bond enthusiasts think will be BND return in 2022 based on current fed rate hike prospects. :D
BND return may indeed be negative for 1H, but I’m leaning towards it ending the year well. I’ll be interested in the long end if the 10y yield gets up to 2.5%.
Why wait? BNDW currently has an SEC yield of 2.5%. And it’s duration is only 7yrs.
My expectation is that equities will make a significant top this year. On the backside, initially bond yields will also increase due to inflation concerns and real economy still recovering post-Covid. And then the realization of Fed policy error as a deflationary crunch sets in. Long bonds, USD and shorts will do well in this environment. 2.5% on the 10yr is a timing signal for a tactical trade, not to satisfy any desire for yield.

For income I own leveraged credit CEFs that pay >10%, leveraged muni CEFs that pay >4% federal and state tax-free, as well as MLPs.
Market timer targeting long term cycles -- aiming for several key decisions per asset class per decade
User avatar
HomerJ
Posts: 21246
Joined: Fri Jun 06, 2008 12:50 pm

Re: Bonds are for safety during stock market declines

Post by HomerJ »

CraigTester wrote: Mon Jan 17, 2022 2:05 pm
HomerJ wrote: Mon Jan 17, 2022 1:54 pm
CraigTester wrote: Mon Jan 17, 2022 11:28 am I guess I just keep trying to understand how people are making decisions....that genuinely don't appear to make sense.
See, here's where you should start to figure out that you can't predict the future. Since you don't even understand what is happening NOW.
If the future of US asset pricing resembles the bulk of the last 100 years or so, I am very confident in my ability to understand what is very likely to happen...

However, I will concede that if it continues to reflect "just" the last couple years, I will continue to scratch my chin.
CAPE has been "high" since 1992 except for a brief moment in 2009. That's 30 years where the market was 99% of the time considered "over-valued".

U.S. asset pricing has not resembled the bulk of the last 100 years or so for nearly 30 years straight.

Your confidence in your ability to predict the future is badly misplaced.

You were absolutely sure in 2018 that the market was due for a crash. The fact that the market instead went up 75% first has apparently not shaken your confidence at all. If even your own failed predictions can't change your mind, nothing I say will.

Good luck.
"The best tools available to us are shovels, not scalpels. Don't get carried away." - vanBogle59
CraigTester
Posts: 1469
Joined: Wed Aug 08, 2018 6:34 am

Re: Bonds are for safety during stock market declines

Post by CraigTester »

HomerJ wrote: Wed Jan 19, 2022 1:01 am
CraigTester wrote: Mon Jan 17, 2022 2:05 pm
HomerJ wrote: Mon Jan 17, 2022 1:54 pm
CraigTester wrote: Mon Jan 17, 2022 11:28 am I guess I just keep trying to understand how people are making decisions....that genuinely don't appear to make sense.
See, here's where you should start to figure out that you can't predict the future. Since you don't even understand what is happening NOW.
If the future of US asset pricing resembles the bulk of the last 100 years or so, I am very confident in my ability to understand what is very likely to happen...

However, I will concede that if it continues to reflect "just" the last couple years, I will continue to scratch my chin.
CAPE has been "high" since 1992 except for a brief moment in 2009. That's 30 years where the market was 99% of the time considered "over-valued".

U.S. asset pricing has not resembled the bulk of the last 100 years or so for nearly 30 years straight.

Your confidence in your ability to predict the future is badly misplaced.

You were absolutely sure in 2018 that the market was due for a crash. The fact that the market instead went up 75% first has apparently not shaken your confidence at all. If even your own failed predictions can't change your mind, nothing I say will.

Good luck.
The problem you currently face is that the same rules that keep you in the market right now, will also keep you in it through the correction. This is true for your equities and fixed income.

You like to pretend that rebalancing will save the day, but the optimal rebalancing frequency is 8 years.

I’m encouraged that you seem to have at least softened your requirement to hold BND in the face of compelling logic not to, but your equity experience is likely to be unpleasant in the coming years.

I know you say you are prepared, and that’s great, but IMHO, the pain is just not necessary.

You like to follow Bogle’s philosophy , I prefer Ben Graham’ - which allows for making rationale adjustments when the market behaves irrationally. It’s admittedly more work, but it has been well worth it over the years. I don’t just blindly own any investment without understanding why.
KlangFool
Posts: 31426
Joined: Sat Oct 11, 2008 12:35 pm

Re: Bonds are for safety during stock market declines

Post by KlangFool »

CraigTester wrote: Wed Jan 19, 2022 4:20 am
HomerJ wrote: Wed Jan 19, 2022 1:01 am
CraigTester wrote: Mon Jan 17, 2022 2:05 pm
HomerJ wrote: Mon Jan 17, 2022 1:54 pm
CraigTester wrote: Mon Jan 17, 2022 11:28 am I guess I just keep trying to understand how people are making decisions....that genuinely don't appear to make sense.
See, here's where you should start to figure out that you can't predict the future. Since you don't even understand what is happening NOW.
If the future of US asset pricing resembles the bulk of the last 100 years or so, I am very confident in my ability to understand what is very likely to happen...

However, I will concede that if it continues to reflect "just" the last couple years, I will continue to scratch my chin.
CAPE has been "high" since 1992 except for a brief moment in 2009. That's 30 years where the market was 99% of the time considered "over-valued".

U.S. asset pricing has not resembled the bulk of the last 100 years or so for nearly 30 years straight.

Your confidence in your ability to predict the future is badly misplaced.

You were absolutely sure in 2018 that the market was due for a crash. The fact that the market instead went up 75% first has apparently not shaken your confidence at all. If even your own failed predictions can't change your mind, nothing I say will.

Good luck.
The problem you currently face is that the same rules that keep you in the market right now, will also keep you in it through the correction. This is true for your equities and fixed income.

You like to pretend that rebalancing will save the day, but the optimal rebalancing frequency is 8 years.

I’m encouraged that you seem to have at least softened your requirement to hold BND in the face of compelling logic not to, but your equity experience is likely to be unpleasant in the coming years.

I know you say you are prepared, and that’s great, but IMHO, the pain is just not necessary.

You like to follow Bogle’s philosophy , I prefer Ben Graham’ - which allows for making rationale adjustments when the market behaves irrationally. It’s admittedly more work, but it has been well worth it over the years. I don’t just blindly own any investment without understanding why.
We use annual and/or 5/25 band based rebalancing. We don't claim to be able to predict the future and know 8 years is optimum.

If you believe that the stock is over priced, why are you 25% stock?

In summary, due to your ability to predict the future, you have been 25% stock and 75% cash since 2018. You believe both the stock and the bond are overpriced since 2018.

KlangFool
Last edited by KlangFool on Wed Jan 19, 2022 7:32 am, edited 1 time in total.
30% VWENX | 16% VFWAX/VTIAX | 14.5% VTSAX | 19.5% VBTLX | 10% VSIAX/VTMSX/VSMAX | 10% VSIGX| 30% Wellington 50% 3-funds 20% Mini-Larry
User avatar
vanbogle59
Posts: 1314
Joined: Wed Mar 10, 2021 7:30 pm

Re: Bonds are for safety during stock market declines

Post by vanbogle59 »

CraigTester wrote: Wed Jan 19, 2022 4:20 am The problem you currently face is that the same rules that keep you in the market right now, will also keep you in it through the correction. This is true for your equities and fixed income.

You like to pretend that rebalancing will save the day, but the optimal rebalancing frequency is 8 years.

I’m encouraged that you seem to have at least softened your requirement to hold BND in the face of compelling logic not to, but your equity experience is likely to be unpleasant in the coming years.

I know you say you are prepared, and that’s great, but IMHO, the pain is just not necessary.

You like to follow Bogle’s philosophy , I prefer Ben Graham’ - which allows for making rationale adjustments when the market behaves irrationally. It’s admittedly more work, but it has been well worth it over the years. I don’t just blindly own any investment without understanding why.
Aug 08, 2018:
"It just doesn't seem terribly intelligent to invest ANY of my dollars at a point in time when valuations are at their second highest level in history.
Every time in history when multiples have reached these heights, it has not ended well.
...
Again, it always has in the past after reaching these levels of valuation."

Ain't history grand!
"It just doesn't seem terribly intelligent"
Tom_T
Posts: 4824
Joined: Wed Aug 29, 2007 2:33 pm

Re: Bonds are for safety during stock market declines

Post by Tom_T »

vanbogle59 wrote: Wed Jan 19, 2022 7:28 am
CraigTester wrote: Wed Jan 19, 2022 4:20 am The problem you currently face is that the same rules that keep you in the market right now, will also keep you in it through the correction. This is true for your equities and fixed income.

You like to pretend that rebalancing will save the day, but the optimal rebalancing frequency is 8 years.

I’m encouraged that you seem to have at least softened your requirement to hold BND in the face of compelling logic not to, but your equity experience is likely to be unpleasant in the coming years.

I know you say you are prepared, and that’s great, but IMHO, the pain is just not necessary.

You like to follow Bogle’s philosophy , I prefer Ben Graham’ - which allows for making rationale adjustments when the market behaves irrationally. It’s admittedly more work, but it has been well worth it over the years. I don’t just blindly own any investment without understanding why.
Aug 08, 2018:
"It just doesn't seem terribly intelligent to invest ANY of my dollars at a point in time when valuations are at their second highest level in history.
Every time in history when multiples have reached these heights, it has not ended well.
...
Again, it always has in the past after reaching these levels of valuation."

Ain't history grand!
"It just doesn't seem terribly intelligent"
Corollary: every time in history when multiples have reached these heights, the market eventually went on to set new all-time highs. P.S. as for "not ending well", I wasn't aware that the market ever actually ended. :)
CraigTester
Posts: 1469
Joined: Wed Aug 08, 2018 6:34 am

Re: Bonds are for safety during stock market declines

Post by CraigTester »

KlangFool wrote: Wed Jan 19, 2022 6:31 am
CraigTester wrote: Wed Jan 19, 2022 4:20 am
HomerJ wrote: Wed Jan 19, 2022 1:01 am
CraigTester wrote: Mon Jan 17, 2022 2:05 pm
HomerJ wrote: Mon Jan 17, 2022 1:54 pm

See, here's where you should start to figure out that you can't predict the future. Since you don't even understand what is happening NOW.
If the future of US asset pricing resembles the bulk of the last 100 years or so, I am very confident in my ability to understand what is very likely to happen...

However, I will concede that if it continues to reflect "just" the last couple years, I will continue to scratch my chin.
CAPE has been "high" since 1992 except for a brief moment in 2009. That's 30 years where the market was 99% of the time considered "over-valued".

U.S. asset pricing has not resembled the bulk of the last 100 years or so for nearly 30 years straight.

Your confidence in your ability to predict the future is badly misplaced.

You were absolutely sure in 2018 that the market was due for a crash. The fact that the market instead went up 75% first has apparently not shaken your confidence at all. If even your own failed predictions can't change your mind, nothing I say will.

Good luck.
The problem you currently face is that the same rules that keep you in the market right now, will also keep you in it through the correction. This is true for your equities and fixed income.

You like to pretend that rebalancing will save the day, but the optimal rebalancing frequency is 8 years.

I’m encouraged that you seem to have at least softened your requirement to hold BND in the face of compelling logic not to, but your equity experience is likely to be unpleasant in the coming years.

I know you say you are prepared, and that’s great, but IMHO, the pain is just not necessary.

You like to follow Bogle’s philosophy , I prefer Ben Graham’ - which allows for making rationale adjustments when the market behaves irrationally. It’s admittedly more work, but it has been well worth it over the years. I don’t just blindly own any investment without understanding why.
We use annual and/or 5/25 band based rebalancing. We don't claim to be able to predict the future and know 8 years is optimum.

If you believe that the stock is over priced, why are you 25% stock?

In summary, due to your ability to predict the future, you have been 25% stock and 75% cash since 2018. You believe both the stock and the bond are overpriced since 2018.

KlangFool
8 year rebalancing cycle has been clearly established as optimal if you are maximizing SWR....Maybe this time will be different, but that has been a long-established pattern. You are reducing your SWR if rebalancing every year.

25% is Ben Graham's lower bound for equities allocation when pricing becomes irrational. Note that I have been 100% for much of my history with a few key exceptions, this is one of them. Also note what interest rates were in 2018. I preferred intermediate bonds then and am still holding a bunch of them. As maturities occur, I reluctantly prefer cash at the moment for reasons explained earlier in this thread.

March 2020 offered some interesting opportunities but I have largely been 25% equities since late 2018....I did something very similar in the dot com era, and it eventually worked out great, but I did experience some FOMO before eventual relief..... And slept well through the entire run up and crash....

I just can't bring myself to hold an asset that is priced at 2-3X it's intrinsic value. Any "rule" I can follow that would lead me to hold a high allocation of US equities at this moment, would also require me to hold them as they revert to their mean....I have a long term view....2018-2021 is noise....And I make no claim to be able to offer any reliable prediction in the near term....
KlangFool
Posts: 31426
Joined: Sat Oct 11, 2008 12:35 pm

Re: Bonds are for safety during stock market declines

Post by KlangFool »

CraigTester wrote: Wed Jan 19, 2022 8:35 am
8 year rebalancing cycle has been clearly established as optimal if you are maximizing SWR....Maybe this time will be different, but that has been a long-established pattern. You are reducing your SWR if rebalancing every year.

25% is Ben Graham's lower bound for equities allocation when pricing becomes irrational. Note that I have been 100% for much of my history with a few key exceptions, this is one of them. Also note what interest rates were in 2018. I preferred intermediate bonds then and am still holding a bunch of them. As maturities occur, I reluctantly prefer cash at the moment for reasons explained earlier in this thread.

March 2020 offered some interesting opportunities but I have largely been 25% equities since late 2018....I did something very similar in the dot com era, and it eventually worked out great, but I did experience some FOMO before eventual relief..... And slept well through the entire run up and crash....

I just can't bring myself to hold an asset that is priced at 2-3X it's intrinsic value. Any "rule" I can follow that would lead me to hold a high allocation of US equities at this moment, would also require me to hold them as they revert to their mean....I have a long term view....2018-2021 is noise....And I make no claim to be able to offer any reliable prediction in the near term....
CraigTester,

In summary, you switch between 100% stock and 25% stock and 75% cash.

Good luck to you!

KlangFool
30% VWENX | 16% VFWAX/VTIAX | 14.5% VTSAX | 19.5% VBTLX | 10% VSIAX/VTMSX/VSMAX | 10% VSIGX| 30% Wellington 50% 3-funds 20% Mini-Larry
Leesbro63
Posts: 10581
Joined: Mon Nov 08, 2010 3:36 pm

Re: Bonds are for safety during stock market declines

Post by Leesbro63 »

CraigTester wrote: Wed Jan 19, 2022 8:35 am
8 year rebalancing cycle has been clearly established as optimal if you are maximizing SWR....
I've been following this board for many years and personal finance, in general, for 40 years and have never seen this. Can you provide a reference? (For what it's worth, I'm not disagreeing. Just never heard this.)
Last edited by Leesbro63 on Wed Jan 19, 2022 9:16 am, edited 1 time in total.
Elysium
Posts: 4119
Joined: Mon Apr 02, 2007 6:22 pm

Re: Bonds are for safety during stock market declines

Post by Elysium »

CraigTester wrote: Wed Jan 19, 2022 8:35 am I just can't bring myself to hold an asset that is priced at 2-3X it's intrinsic value. Any "rule" I can follow that would lead me to hold a high allocation of US equities at this moment, would also require me to hold them as they revert to their mean....I have a long term view....2018-2021 is noise....And I make no claim to be able to offer any reliable prediction in the near term....
25% per year average annualized return for S&P 500 2019-2021, that's some noise! You were better off taking the returns and re-balancing. How far should the market fall from there to justify staying out for that long through that sort of good times for the market. I reckon at least 50% to just cancel out last three years, if not more. Anyone waiting for a 50% drop in market is deluding themselves.
User avatar
vanbogle59
Posts: 1314
Joined: Wed Mar 10, 2021 7:30 pm

Re: Bonds are for safety during stock market declines

Post by vanbogle59 »

CraigTester wrote: Wed Jan 19, 2022 8:35 am 8 year rebalancing cycle has been clearly established as optimal if you are maximizing SWR....Maybe this time will be different, but that has been a long-established pattern. You are reducing your SWR if rebalancing every year.

25% is Ben Graham's lower bound for equities allocation when pricing becomes irrational. Note that I have been 100% for much of my history with a few key exceptions, this is one of them. Also note what interest rates were in 2018. I preferred intermediate bonds then and am still holding a bunch of them. As maturities occur, I reluctantly prefer cash at the moment for reasons explained earlier in this thread.

March 2020 offered some interesting opportunities but I have largely been 25% equities since late 2018....I did something very similar in the dot com era, and it eventually worked out great, but I did experience some FOMO before eventual relief..... And slept well through the entire run up and crash....

I just can't bring myself to hold an asset that is priced at 2-3X it's intrinsic value. Any "rule" I can follow that would lead me to hold a high allocation of US equities at this moment, would also require me to hold them as they revert to their mean....I have a long term view....2018-2021 is noise....And I make no claim to be able to offer any reliable prediction in the near term....
If you want to engage in market timing strategies, you are not likely to find productive conversation here.
However, if you insist, you should at least try to do it well.
There are people who do it with more sophistication than "I just can't bring myself to..."

I recommend starting here as a well-reasoned example:
viewtopic.php?f=10&t=270035
Topic Author
ebeb
Posts: 658
Joined: Sat Dec 23, 2017 1:18 pm

Re: Bonds are for safety during stock market declines

Post by ebeb »

vanbogle59 wrote: Wed Jan 19, 2022 7:28 am Aug 08, 2018:
"It just doesn't seem terribly intelligent to invest ANY of my dollars at a point in time when valuations are at their second highest level in history.
Every time in history when multiples have reached these heights, it has not ended well.
...
Again, it always has in the past after reaching these levels of valuation."

Ain't history grand!
"It just doesn't seem terribly intelligent"
I always wonder how several users are able to recall such "gotcha" for another user from several years back on many threads. Do they have some super-memory pill or Artificial Intelligence search abilities, its amazing :confused
80% VOO | 20% BND+TBILL+CASH | Don't believe Nobody because Nobody knows nothin' - Anon
User avatar
vanbogle59
Posts: 1314
Joined: Wed Mar 10, 2021 7:30 pm

Re: Bonds are for safety during stock market declines

Post by vanbogle59 »

ebeb wrote: Wed Jan 19, 2022 10:02 am
vanbogle59 wrote: Wed Jan 19, 2022 7:28 am Aug 08, 2018:
"It just doesn't seem terribly intelligent to invest ANY of my dollars at a point in time when valuations are at their second highest level in history.
Every time in history when multiples have reached these heights, it has not ended well.
...
Again, it always has in the past after reaching these levels of valuation."

Ain't history grand!
"It just doesn't seem terribly intelligent"
I always wonder how several users are able to recall such "gotcha" for another user from several years back on many threads. Do they have some super-memory pill or Artificial Intelligence search abilities, its amazing :confused
For me, one of the best features of this board, is that you can search the history of a user's posts.
So, when someone makes a prediction, you can easily see what other predictions they've made.
Personally, I would love to meet someone who can do it well. Unfortunately, I'm still looking....
:beer
Da5id
Posts: 5058
Joined: Fri Feb 26, 2016 7:20 am

Re: Bonds are for safety during stock market declines

Post by Da5id »

ebeb wrote: Wed Jan 19, 2022 10:02 am
vanbogle59 wrote: Wed Jan 19, 2022 7:28 am Aug 08, 2018:
"It just doesn't seem terribly intelligent to invest ANY of my dollars at a point in time when valuations are at their second highest level in history.
Every time in history when multiples have reached these heights, it has not ended well.
...
Again, it always has in the past after reaching these levels of valuation."

Ain't history grand!
"It just doesn't seem terribly intelligent"
I always wonder how several users are able to recall such "gotcha" for another user from several years back on many threads. Do they have some super-memory pill or Artificial Intelligence search abilities, its amazing :confused
You can search a user's posting history easily. And if someone is advocating market timing, their past timing calls are surely on point. Thing is, if you make enough calls you will eventually be "right".
Topic Author
ebeb
Posts: 658
Joined: Sat Dec 23, 2017 1:18 pm

Re: Bonds are for safety during stock market declines

Post by ebeb »

Da5id wrote: Wed Jan 19, 2022 10:10 am You can search a user's posting history easily. And if someone is advocating market timing, their past timing calls are surely on point. Thing is, if you make enough calls you will eventually be "right".
Unfortunately a user can easily delete any wrong posts and keep only the correct predictions so on average they seem always right. Maybe thats where others "quote" of the user posts come handy but you would need to find those also :D .
80% VOO | 20% BND+TBILL+CASH | Don't believe Nobody because Nobody knows nothin' - Anon
User avatar
HomerJ
Posts: 21246
Joined: Fri Jun 06, 2008 12:50 pm

Re: Bonds are for safety during stock market declines

Post by HomerJ »

CraigTester wrote: Wed Jan 19, 2022 4:20 am
HomerJ wrote: Wed Jan 19, 2022 1:01 am
CraigTester wrote: Mon Jan 17, 2022 2:05 pm
HomerJ wrote: Mon Jan 17, 2022 1:54 pm
CraigTester wrote: Mon Jan 17, 2022 11:28 am I guess I just keep trying to understand how people are making decisions....that genuinely don't appear to make sense.
See, here's where you should start to figure out that you can't predict the future. Since you don't even understand what is happening NOW.
If the future of US asset pricing resembles the bulk of the last 100 years or so, I am very confident in my ability to understand what is very likely to happen...

However, I will concede that if it continues to reflect "just" the last couple years, I will continue to scratch my chin.
CAPE has been "high" since 1992 except for a brief moment in 2009. That's 30 years where the market was 99% of the time considered "over-valued".

U.S. asset pricing has not resembled the bulk of the last 100 years or so for nearly 30 years straight.

Your confidence in your ability to predict the future is badly misplaced.

You were absolutely sure in 2018 that the market was due for a crash. The fact that the market instead went up 75% first has apparently not shaken your confidence at all. If even your own failed predictions can't change your mind, nothing I say will.

Good luck.
The problem you currently face is that the same rules that keep you in the market right now, will also keep you in it through the correction. This is true for your equities and fixed income.
Yes, of course... that's the plan. Buy and hold right through the corrections.

You do realize that's the Boglehead philosophy, right? And so far, it's worked FAR better for most people than market-timing. Which is why we do it. Your documented failed market-timing, on these boards, so far, proves the point.
You like to pretend that rebalancing will save the day, but the optimal rebalancing frequency is 8 years.
I'm not worried about "optimal" rebalancing. My only point about rebalancing is that I've already locked in many of the gains of this bull market, that will NOT disappear when (not if) the next crash happens.
I know you say you are prepared, and that’s great, but IMHO, the pain is just not necessary.
You can try to avoid the pain, but then you risk experiencing more pain instead. And most people do worse trying to avoid the pain.

That's really the whole philosophy behind buy and hold. Trying to market-time is harder than you say. It's not easy to avoid the pain.

I recommend, instead, a plan that minimizes the pain. There WILL be a crash, and/or extended periods of negative or low returns. Have an Asset Allocation that you can hold through the next crash, and you no longer have to worry about trying to time the next crash. That could still be a 100/0 or 90/10 allocation for a young person's retirement fund since they have plenty of time to get through the next bad period.

But maybe a 50/50 portfolio for someone who is close to retirement, since they may need some of the money soon (but still 50% in long-term stock money that will have time to recover)
You like to follow Bogle’s philosophy , I prefer Ben Graham’ - which allows for making rationale adjustments when the market behaves irrationally. It’s admittedly more work, but it has been well worth it over the years. I don’t just blindly own any investment without understanding why.
Most people fail at market-timing.

Including yourself (and me too). You've PROVEN you can't do it.
"The best tools available to us are shovels, not scalpels. Don't get carried away." - vanBogle59
BitTooAggressive
Posts: 1077
Joined: Tue Jul 13, 2021 3:15 pm

Re: Bonds are for safety during stock market declines

Post by BitTooAggressive »

vanbogle59 wrote: Wed Jan 19, 2022 7:28 am
CraigTester wrote: Wed Jan 19, 2022 4:20 am The problem you currently face is that the same rules that keep you in the market right now, will also keep you in it through the correction. This is true for your equities and fixed income.

You like to pretend that rebalancing will save the day, but the optimal rebalancing frequency is 8 years.

I’m encouraged that you seem to have at least softened your requirement to hold BND in the face of compelling logic not to, but your equity experience is likely to be unpleasant in the coming years.

I know you say you are prepared, and that’s great, but IMHO, the pain is just not necessary.

You like to follow Bogle’s philosophy , I prefer Ben Graham’ - which allows for making rationale adjustments when the market behaves irrationally. It’s admittedly more work, but it has been well worth it over the years. I don’t just blindly own any investment without understanding why.
Aug 08, 2018:
"It just doesn't seem terribly intelligent to invest ANY of my dollars at a point in time when valuations are at their second highest level in history.
Every time in history when multiples have reached these heights, it has not ended well.
...
Again, it always has in the past after reaching these levels of valuation."

Ain't history grand!
"It just doesn't seem terribly intelligent"
There are other places to invest new money besides the US stock and bond markets. :D
Leesbro63
Posts: 10581
Joined: Mon Nov 08, 2010 3:36 pm

Re: Bonds are for safety during stock market declines

Post by Leesbro63 »

CraigTester wrote: Wed Jan 19, 2022 4:20 am
Aug 08, 2018:
"It just doesn't seem terribly intelligent to invest ANY of my dollars at a point in time when valuations are at their second highest level in history.
Every time in history when multiples have reached these heights, it has not ended well.
...
Again, it always has in the past after reaching these levels
That was a much easier attitude to have in 2018 when cash wasn’t being inflated away at 7%.
CraigTester
Posts: 1469
Joined: Wed Aug 08, 2018 6:34 am

Re: Bonds are for safety during stock market declines

Post by CraigTester »

Elysium wrote: Wed Jan 19, 2022 9:13 am
CraigTester wrote: Wed Jan 19, 2022 8:35 am I just can't bring myself to hold an asset that is priced at 2-3X it's intrinsic value. Any "rule" I can follow that would lead me to hold a high allocation of US equities at this moment, would also require me to hold them as they revert to their mean....I have a long term view....2018-2021 is noise....And I make no claim to be able to offer any reliable prediction in the near term....
25% per year average annualized return for S&P 500 2019-2021, that's some noise! You were better off taking the returns and re-balancing. How far should the market fall from there to justify staying out for that long through that sort of good times for the market. I reckon at least 50% to just cancel out last three years, if not more. Anyone waiting for a 50% drop in market is deluding themselves.
Here's a little perspective which I guess nobody talks about on this forum, because it doesn't really fit the "narrative"

The following time periods represent how long it took for an inflation adjusted position in the SP500 with dividends reinvested to get back to break-even.

20 yrs. May 1901-Aug 1921.
20 yrs. Aug 1929–May 1949
15 yrs. Nov 1968-Mar 1983
13 yrs. Mar 2000- Jan 2013

As the most recent of these examples, you could have gotten out any time in the late 90s and had lots of opportunities to take another position at a better price anywhere during the 2009 period....In the mean time, note that the 10-year bond was yielding 5 or 6%...

I suppose there were lots of nobody-knows-nuttin folks taking victory laps towards the beginning of any of these periods, with just a few on the sidelines shouting that a train was heading right for them...

As long as you are doing what you are doing consciously, you will be fine.... The ones I actually have concern for are all the folks who seem kind of oblivious to the risk-reward trade-offs they have exposed themselves to at today's valuation levels of risk assets in the US markets (bonds and equities)

P.S. Rebalancing isn't a magic bullet, in fact if done too frequently, or not frequently enough, it only hurts your performance... Bill Bengen, among others, did a lot of research on this which he captured in various books and publishings....I don't have an immediate link, but I'm sure Google will allow you to immediately find....
User avatar
HomerJ
Posts: 21246
Joined: Fri Jun 06, 2008 12:50 pm

Re: Bonds are for safety during stock market declines

Post by HomerJ »

CraigTester wrote: Wed Jan 19, 2022 11:11 am
Elysium wrote: Wed Jan 19, 2022 9:13 am
CraigTester wrote: Wed Jan 19, 2022 8:35 am I just can't bring myself to hold an asset that is priced at 2-3X it's intrinsic value. Any "rule" I can follow that would lead me to hold a high allocation of US equities at this moment, would also require me to hold them as they revert to their mean....I have a long term view....2018-2021 is noise....And I make no claim to be able to offer any reliable prediction in the near term....
25% per year average annualized return for S&P 500 2019-2021, that's some noise! You were better off taking the returns and re-balancing. How far should the market fall from there to justify staying out for that long through that sort of good times for the market. I reckon at least 50% to just cancel out last three years, if not more. Anyone waiting for a 50% drop in market is deluding themselves.
Here's a little perspective which I guess nobody talks about on this forum, because it doesn't really fit the "narrative"
You haven't read enough of the forum apparently. You don't seem to understand what the "narrative" is.

This isn't a group that believes the stock market only goes up and there is never any long periods of low returns.
The following time periods represent how long it took for an inflation adjusted position in the SP500 with dividends reinvested to get back to break-even.

20 yrs. May 1901-Aug 1921.
20 yrs. Aug 1929–May 1949
15 yrs. Nov 1968-Mar 1983
13 yrs. Mar 2000- Jan 2013
We talk about the "lost decade" of the 2000s all the time.

The 1966-1982 period is always brought up when talking about retirement and worst case scenarios.

We are well aware of these periods.

We preach that crashes and long periods of low returns WILL happen, and one should be prepared for it. I do worry sometimes that newer younger investors who have never gone through a long crash may not be listening, but we do talk about it often.
As the most recent of these examples, you could have gotten out any time in the late 90s and had lots of opportunities to take another position at a better price anywhere during the 2009 period....In the mean time, note that the 10-year bond was yielding 5 or 6%...
Market-timing is only easy in hindsight. You would have started getting out in 1992, and fully out by 1996. In 1996, valuations were the second highest in history (just like your 2018 post). SP500 was in the low 600s in 1996, and it never dropped that low again (there was like 4 days in March 2009 where it dipped into the high 600s). And that was a long 13 years to wait for a 4-day window.

Market-timing is not as easy as you say. It also requires good timing on both ends. You've already proven how hard getting the timing correct is. You got out in 2018, and missed out on a 75% gain, so far. In real-time, you've PROVEN that market-timing is hard.

Sure It would be great if one could just avoid the bad times in stocks, and only invest when they are going up, but it's not easy as you say it is.

But here's the thing. Here's the big secret of Boglehead investing. The long-term nominal 9%-10% returns of the stock market INCLUDES all the crashes and the long periods of low returns. So far, in the past, one didn't have to avoid the crashes and long periods of low returns to still get a great long-term return on their money and become wealthy.

Investing in stocks in 2000 at the highest valuations in history still gave a good return over the next 20 years. And of course, money invested in 1998, and 1999, and 2001, and 2002, etc. have returned even MORE. So far, while accumulating especially, you could completely ignore valuations and become quite wealthy.

So far, market-timing hasn't been easy, and, just as important, hasn't been necessary, to become rich.

So far. No guarantees on the future. But you're big on the history, and the history says market-timing is not necessary, and rarely works well in real-time anyway.
P.S. Rebalancing isn't a magic bullet, in fact if done too frequently, or not frequently enough, it only hurts your performance
This is correct. I rebalance to maintain the same risk profile, not to increase performance.
"The best tools available to us are shovels, not scalpels. Don't get carried away." - vanBogle59
CraigTester
Posts: 1469
Joined: Wed Aug 08, 2018 6:34 am

Re: Bonds are for safety during stock market declines

Post by CraigTester »

HomerJ wrote: Wed Jan 19, 2022 11:32 am
CraigTester wrote: Wed Jan 19, 2022 11:11 am
Elysium wrote: Wed Jan 19, 2022 9:13 am
CraigTester wrote: Wed Jan 19, 2022 8:35 am I just can't bring myself to hold an asset that is priced at 2-3X it's intrinsic value. Any "rule" I can follow that would lead me to hold a high allocation of US equities at this moment, would also require me to hold them as they revert to their mean....I have a long term view....2018-2021 is noise....And I make no claim to be able to offer any reliable prediction in the near term....
25% per year average annualized return for S&P 500 2019-2021, that's some noise! You were better off taking the returns and re-balancing. How far should the market fall from there to justify staying out for that long through that sort of good times for the market. I reckon at least 50% to just cancel out last three years, if not more. Anyone waiting for a 50% drop in market is deluding themselves.
Here's a little perspective which I guess nobody talks about on this forum, because it doesn't really fit the "narrative"
You haven't read enough of the forum apparently. You don't seem to understand what the "narrative" is.

This isn't a group that believes the stock market only goes up and there is never any long periods of low returns.
The following time periods represent how long it took for an inflation adjusted position in the SP500 with dividends reinvested to get back to break-even.

20 yrs. May 1901-Aug 1921.
20 yrs. Aug 1929–May 1949
15 yrs. Nov 1968-Mar 1983
13 yrs. Mar 2000- Jan 2013
We talk about the "lost decade" of the 2000s all the time.

The 1966-1982 period is always brought up when talking about retirement and worst case scenarios.

We are well aware of these periods.

We preach that crashes and long periods of low returns WILL happen, and one should be prepared for it. I do worry sometimes that newer younger investors who have never gone through a long crash may not be listening, but we do talk about it often.
As the most recent of these examples, you could have gotten out any time in the late 90s and had lots of opportunities to take another position at a better price anywhere during the 2009 period....In the mean time, note that the 10-year bond was yielding 5 or 6%...
Market-timing is only easy in hindsight. You would have started getting out in 1992, and fully out by 1996. In 1996, valuations were the second highest in history (just like your 2018 post). SP500 was in the low 600s in 1996, and it never dropped that low again (there was like 4 days in March 2009 where it dipped into the high 600s). And that was a long 13 years to wait for a 4-day window.

Market-timing is not as easy as you say. It also requires good timing on both ends. You've already proven how hard getting the timing correct is. You got out in 2018, and missed out on a 75% gain, so far.

Sure It would be great if one could just avoid the bad times in stocks, and only invest when they are going up, but it's not easy as you say it is.

But here's the thing. Here's the big secret of Boglehead investing. The long-term nominal 9%-10% returns of the stock market INCLUDES all the crashes and the long periods of low returns. So far, in the past, one didn't have to avoid the crashes and long periods of low returns to still get a great long-term return on their money.

So far. No guarantees on the future.
P.S. Rebalancing isn't a magic bullet, in fact if done too frequently, or not frequently enough, it only hurts your performance
This is correct. I rebalance to maintain the same risk profile, not to increase performance.
I actually believe you, "Homer", will be emotionally ok during the correction. Rather, my fear for you specifically, is if you apply a 4% SWR against a 50-50 portfolio based on today's pricing, you are going to have a very unpleasant experience. You might limp to the 30 year finish line with $1 to spare, but its going to be nip-and-tuck....

My fear for so many others on this forum are that they seem to believe you would be "deluding" yourself to believe a 50% plus drop is likely....Where in fact, at today's price levels, it's not only likely, its expected....Not if, but when...

I hear others refuse to learn the mechanics behind bond pricing because "nobody-knows-nuttin"... so they just buy BND believing that there is some kind of magic math that occurs by bundling a bunch of over-priced bonds into a "fund"... Reminds me of the attitude toward MBS prior to the sub-prime crisis...

I also frequently hear people confidently stating that crashes can last "a couple years".... where I just illustrated 4 time periods where they can last significantly longer....

On another thread, we discussed the possible catalyst behind today's valuations....And while there are definitely a few strong opinions out there..., there is no consensus, no excuse, no justification....This tells me that beyond the math, we are setting up for a big one....I plan to go through it with 25% equity exposure....and you seem to be set to go through with 50%.....

I don't think we are going to change each other's minds, but hopefully at least our exchanges have illuminated some of the trade-offs that people are making.... Consciously, or otherwise....

Let's revisit these thoughts in a few years....
User avatar
willthrill81
Posts: 32250
Joined: Thu Jan 26, 2017 2:17 pm
Location: USA
Contact:

Re: Bonds are for safety during stock market declines

Post by willthrill81 »

CraigTester wrote: Wed Jan 19, 2022 12:10 pm My fear for so many others on this forum are that they seem to believe you would be "deluding" yourself to believe a 50% plus drop is likely....Where in fact, at today's price levels, it's not only likely, its expected....Not if, but when...
While I believe that today's valuations portend significantly lower forward stock returns than their historic average, that does not mean that they have to drop by 50% or even drop at all. Stock prices could just more or less stagnate for a long time. While not being great for retirees, it wouldn't be nearly as bad as the worst historic scenarios.
CraigTester wrote: Wed Jan 19, 2022 12:10 pm I also frequently hear people confidently stating that crashes can last "a couple years".... where I just illustrated 4 time periods where they can last significantly longer....
At least in the 2000-2013 period you cited, that was most definitely not a single crash; rather, it was two. The inflation-adjusted balance of TSM recovered fully by 2007, just before the second crash.

And even with today's bond yields being what they are, I demonstrated in this thread that if year 2000 retirees strictly adhering to the '4% rule' had experienced returns similar to what the bond market is currently expecting, they would still be likely to make it to the 30 year mark before depleting their portfolio, though as I noted, it would likely be a close shave.

Anyone who knows much at all about the '4% rule' should know that if something at all akin to the worst historic periods occurs again that they may largely or even entirely deplete their portfolio after 30 years of withdrawals. But in reality, nobody strictly adheres to the '4% rule'; everyone knows that they need to withdraw less if/when their portfolio is suffering.

If you're just advocating that those with substantial exposure to large-cap stocks and bonds have more conservative than average expectations of future performance, I entirely agree.
The Sensible Steward
CraigTester
Posts: 1469
Joined: Wed Aug 08, 2018 6:34 am

Re: Bonds are for safety during stock market declines

Post by CraigTester »

willthrill81 wrote: Wed Jan 19, 2022 12:34 pm
CraigTester wrote: Wed Jan 19, 2022 12:10 pm My fear for so many others on this forum are that they seem to believe you would be "deluding" yourself to believe a 50% plus drop is likely....Where in fact, at today's price levels, it's not only likely, its expected....Not if, but when...
While I believe that today's valuations portend significantly lower forward stock returns than their historic average, that does not mean that they have to drop by 50% or even drop at all. Stock prices could just more or less stagnate for a long time. While not being great for retirees, it wouldn't be nearly as bad as the worst historic scenarios.
CraigTester wrote: Wed Jan 19, 2022 12:10 pm I also frequently hear people confidently stating that crashes can last "a couple years".... where I just illustrated 4 time periods where they can last significantly longer....
At least in the 2000-2013 period you cited, that was most definitely not a single crash; rather, it was two. The inflation-adjusted balance of TSM recovered fully by 2007, just before the second crash.

And even with today's bond yields being what they are, I demonstrated in this thread that if year 2000 retirees strictly adhering to the '4% rule' had experienced returns similar to what the bond market is currently expecting, they would still be likely to make it to the 30 year mark before depleting their portfolio, though as I noted, it would likely be a close shave.

Anyone who knows much at all about the '4% rule' should know that if something at all akin to the worst historic periods occurs again that they may largely or even entirely deplete their portfolio after 30 years of withdrawals. But in reality, nobody strictly adheres to the '4% rule'; everyone knows that they need to withdraw less if/when their portfolio is suffering.

If you're just advocating that those with substantial exposure to large-cap stocks and bonds have more conservative than average expectations of future performance, I entirely agree.
Thanks Willthrill81....I think I mostly agree with all of your clarifications.....

And as I remember the 2000-2013 period very vividly (unfortunately :( ), the one-two punch actually made it more soul-crushing IMHO.....(And by my calculations, it did "almost" fully break-even by September 2007, but I only looked at the "monthly level" so maybe there was a day in there where it actually exceeded?)

The depression era went through some similar "fun" before breaking-even for good in 1949....20 years later...

I'ts probably good we're detailing this out because I've seen the media play lots of games with the numbers to tell a much less depressing version of what actually happened....

And yes, I did visit your SWR thread.....You would make Kitces proud :happy ....and as they say, I think we are all just trying to avoid becoming the next generations lowest-common-denominator...
User avatar
HomerJ
Posts: 21246
Joined: Fri Jun 06, 2008 12:50 pm

Re: Bonds are for safety during stock market declines

Post by HomerJ »

Were you retired in 2000-2013 or still working and accumulating?

Because the 2000-2013 period, as an accumulator, has made me richer than I'd ever imagined I'd be.

Wasn't too soul-crushing for me.

My contributions kept the portfolio balance from going down too much, and the money I invested in 2001, 2002, 2003 grew a lot. 2000-2013 broke even, but money invested in 2001, 2002, 2003, 2004, etc. had a different path. Made a ton, then lost most of it back in 2008-2009, but then that recovered quickly, and portfolio balance was much higher (probably even double) in 2011 than it was in 2000.

So 2000-2013 wasn't soul-crushing for an accumulator. Portfolio was up most of the time, and I got a lot of cheap shares which since then has grown nearly 8x in value.

Stock market runs in cycles. Good years are followed by bad years are followed by good years. One shouldn't fear the bad years so much. It's part of the cycle, and in the long run you still, so far, get rich.
Last edited by HomerJ on Wed Jan 19, 2022 2:20 pm, edited 1 time in total.
"The best tools available to us are shovels, not scalpels. Don't get carried away." - vanBogle59
User avatar
canadianbacon
Posts: 676
Joined: Sun Nov 10, 2019 9:04 pm

Re: Will BND return be negative in 2022

Post by canadianbacon »

I believe a hypothetical 1929 index investor would have broken even in 1936, factoring in dividends and deflation.
Bulls make money, bears make money, pigs get slaughtered.
CraigTester
Posts: 1469
Joined: Wed Aug 08, 2018 6:34 am

Re: Will BND return be negative in 2022

Post by CraigTester »

canadianbacon wrote: Wed Jan 19, 2022 2:20 pm I believe a hypothetical 1929 index investor would have broken even in 1936, factoring in dividends and deflation.
Nope, but that's the version I've heard the media report also...., it momentarily recovered by then, but that was just a head fake....Didn't do its "final" break-even until 1949.....if you analyze it remember to adjust for inflation/deflation and dividends.
CraigTester
Posts: 1469
Joined: Wed Aug 08, 2018 6:34 am

Re: Bonds are for safety during stock market declines

Post by CraigTester »

HomerJ wrote: Wed Jan 19, 2022 2:19 pm Were you retired in 2000-2013 or still working and accumulating?

Because the 2000-2013 period, as an accumulator, has made me richer than I'd ever imagined I'd be.

Wasn't too soul-crushing for me.

My contributions kept the portfolio balance from going down too much, and the money I invested in 2001, 2002, 2003 grew a lot. 2000-2013 broke even, but money invested in 2001, 2002, 2003, 2004, etc. had a different path. Made a ton, then lost most of it back in 2008-2009, but then that recovered quickly, and portfolio balance was much higher (probably even double) in 2011 than it was in 2000.

So 2000-2013 wasn't soul-crushing for an accumulator. Portfolio was up most of the time, and I got a lot of cheap shares which since then has grown nearly 8x in value.

Stock market runs in cycles. Good years are followed by bad years are followed by good years. One shouldn't fear the bad years so much. It's part of the cycle, and in the long run you still, so far, get rich.
Yes, nothing better for an accumulator than a good crash (or two)....

I retired in 2013 so worked through that whole period...and I can tell you, all those people sitting next to me in all those meetings, weren't running out to buy stocks during some of the darker moments....but for those who did (like myself, and yourself it sounds), there were some truly excellent times to buy low and eventually sell some of it higher....

The trick now is to not run that strategy in reverse.... :sharebeer

Nice to see you do have a little rebel in you...
User avatar
vanbogle59
Posts: 1314
Joined: Wed Mar 10, 2021 7:30 pm

Re: Will BND return be negative in 2022

Post by vanbogle59 »

canadianbacon wrote: Wed Jan 19, 2022 2:20 pm I believe a hypothetical 1929 index investor would have broken even in 1936, factoring in dividends and deflation.
My hypothetical 1929 self was 50/50. He was a genius.
I can only hope that my real-world portfolio survives the next great depression that well.
User avatar
HomerJ
Posts: 21246
Joined: Fri Jun 06, 2008 12:50 pm

Re: Bonds are for safety during stock market declines

Post by HomerJ »

CraigTester wrote: Wed Jan 19, 2022 2:48 pm
HomerJ wrote: Wed Jan 19, 2022 2:19 pm Were you retired in 2000-2013 or still working and accumulating?

Because the 2000-2013 period, as an accumulator, has made me richer than I'd ever imagined I'd be.

Wasn't too soul-crushing for me.

My contributions kept the portfolio balance from going down too much, and the money I invested in 2001, 2002, 2003 grew a lot. 2000-2013 broke even, but money invested in 2001, 2002, 2003, 2004, etc. had a different path. Made a ton, then lost most of it back in 2008-2009, but then that recovered quickly, and portfolio balance was much higher (probably even double) in 2011 than it was in 2000.

So 2000-2013 wasn't soul-crushing for an accumulator. Portfolio was up most of the time, and I got a lot of cheap shares which since then has grown nearly 8x in value.

Stock market runs in cycles. Good years are followed by bad years are followed by good years. One shouldn't fear the bad years so much. It's part of the cycle, and in the long run you still, so far, get rich.
Yes, nothing better for an accumulator than a good crash (or two)....

I retired in 2013 so worked through that whole period...and I can tell you, all those people sitting next to me in all those meetings, weren't running out to buy stocks during some of the darker moments....but for those who did (like myself, and yourself it sounds), there were some truly excellent times to buy low and eventually sell some of it higher....

The trick now is to not run that strategy in reverse.... :sharebeer

Nice to see you do have a little rebel in you...
You're really not getting it... I bought the stocks every 2 weeks then exactly the same way I buy stocks every 2 weeks now.

Market-timing has NOT been necessary. I didn't buy MORE stocks during 2000-2010, nor did I buy LESS stocks from 2011-2021. I didn't try to time the market. I just bought and hold every 2 weeks, and 2000-2013 turned out great for me, even by 2013. I didn't need the giant run up since then... I was doing great in 2013, even after a "lost decade", because of all the money I had invested like clockwork from 2001-2009, when the market was down. Sure the money I had in 2000 may have only been back to even (inflation-adjusted) by 2013, but all the OTHER money had positive real returns.

Didn't feel like a "lost decade" at all, even in 2013 at the end of it.
"The best tools available to us are shovels, not scalpels. Don't get carried away." - vanBogle59
User avatar
canadianbacon
Posts: 676
Joined: Sun Nov 10, 2019 9:04 pm

Re: Will BND return be negative in 2022

Post by canadianbacon »

Not worth it.
Last edited by canadianbacon on Wed Jan 19, 2022 3:18 pm, edited 1 time in total.
Bulls make money, bears make money, pigs get slaughtered.
Topic Author
ebeb
Posts: 658
Joined: Sat Dec 23, 2017 1:18 pm

Re: Will BND return be negative in 2022

Post by ebeb »

It gives some comfort that Baa corporate bonds only had few years of mild negative returns during these periods followed by great returns for those more invested in bonds: https://pages.stern.nyu.edu/~adamodar/N ... retSP.html

20 yrs. May 1901-Aug 1921.
20 yrs. Aug 1929–May 1949
15 yrs. Nov 1968-Mar 1983
13 yrs. Mar 2000- Jan 2013
80% VOO | 20% BND+TBILL+CASH | Don't believe Nobody because Nobody knows nothin' - Anon
Elysium
Posts: 4119
Joined: Mon Apr 02, 2007 6:22 pm

Re: Bonds are for safety during stock market declines

Post by Elysium »

CraigTester wrote: Wed Jan 19, 2022 11:11 am
Elysium wrote: Wed Jan 19, 2022 9:13 am
CraigTester wrote: Wed Jan 19, 2022 8:35 am I just can't bring myself to hold an asset that is priced at 2-3X it's intrinsic value. Any "rule" I can follow that would lead me to hold a high allocation of US equities at this moment, would also require me to hold them as they revert to their mean....I have a long term view....2018-2021 is noise....And I make no claim to be able to offer any reliable prediction in the near term....
25% per year average annualized return for S&P 500 2019-2021, that's some noise! You were better off taking the returns and re-balancing. How far should the market fall from there to justify staying out for that long through that sort of good times for the market. I reckon at least 50% to just cancel out last three years, if not more. Anyone waiting for a 50% drop in market is deluding themselves.
Here's a little perspective which I guess nobody talks about on this forum, because it doesn't really fit the "narrative"

The following time periods represent how long it took for an inflation adjusted position in the SP500 with dividends reinvested to get back to break-even.

20 yrs. May 1901-Aug 1921.
20 yrs. Aug 1929–May 1949
15 yrs. Nov 1968-Mar 1983
13 yrs. Mar 2000- Jan 2013

As the most recent of these examples, you could have gotten out any time in the late 90s and had lots of opportunities to take another position at a better price anywhere during the 2009 period....In the mean time, note that the 10-year bond was yielding 5 or 6%...

I suppose there were lots of nobody-knows-nuttin folks taking victory laps towards the beginning of any of these periods, with just a few on the sidelines shouting that a train was heading right for them...
Hold your horses! That's just a lot of what we already know around here stuff. Let me clarify couple of things.

First, no one is ever saying a 50% drop is not possible or unlikely, we invest always based on the probability of something like that may happen again (as it has), in fact we should expect it could even drop 80% as it did during great depression then took 14 years to recover. But so what? you design your portfolio risk control using those knowledge, that is why you use a glidepath to more safety as you get closer to your goals. Market timing to 25% equities because you're afraid valuations are high is not a really great risk control measure, not one that also ensures you greater probability of earning what the market gives during these exceptionally good years.

Second, if you timed out of market in 2018 and did not participate in the gains then you don't get to start the clock when eventually market drops to claim that it took X number of years to recover from there. You start the clock when you exited and compare how much you gained or lost by staying out on the sidelines compared to others who stayed fully invested according to their glidepath plan.

Third, it doesn't matter if the market took 13 years to recover from peak to trough if you were invested during the good years leading up to the peak, because the averages are made of the sum of all peaks and troughs. Since the absolute peak in 2000, the market still made about 7.5% on average, but that would require someone to just pop in with a large sum at that exact time and never invest or take any money out. Most people don't invest like that, so most people did better than worst case scenario if they were disciplined to follow a long term plan that takes advantage of compounding effects.

Fourth, it is not because others aren't concerned about high valuations or have a nobody knows nothing attitude that they don't do timing. Matter of fact, I do share concerns about high valuations just like any other person who is vocal about it here, I just don't act on it because I know the probability of pulling that off is very low and requires a lot of luck, more importantly I don't need to pull something like that off in order to get to my goals. There is a reasonable alternative. If you timed out to 25% equities before this exceptionally good 3 years, then it will need a 50% or more drop for you to get even with the gains you didn't make during these years when S&P 500 increased 99.95% on aggregate (26%+ annualized). This really is the reason many of us don't pull the plug on drastic AA changes like that, the chances of getting it right is extremely slim even when the valuations are screaming the opposite. Market has a way to prove us wrong, so we are better off taking the gains and then reducing exposure using our glidepath.

Lastly, and if you must, then at the minimum you should have a clear rule based strategy, not something based on feelings. Even those are unlikely to succeed, but it gives you a chance to say it measured up to what you expected it to be and you're comfortable with the risk/reward that lets you still meet your goals. If you're retired and/or wealthy enough that you figure you don't need the gains, then again no issues you may do what you want, but it cannot be applied to others who actually need exposed to risk in order to meet their goals.
Last edited by Elysium on Wed Jan 19, 2022 7:39 pm, edited 1 time in total.
rockstar
Posts: 6308
Joined: Mon Feb 03, 2020 5:51 pm

Re: Bonds are for safety during stock market declines

Post by rockstar »

Elysium wrote: Wed Jan 19, 2022 7:32 pm
CraigTester wrote: Wed Jan 19, 2022 11:11 am
Elysium wrote: Wed Jan 19, 2022 9:13 am
CraigTester wrote: Wed Jan 19, 2022 8:35 am I just can't bring myself to hold an asset that is priced at 2-3X it's intrinsic value. Any "rule" I can follow that would lead me to hold a high allocation of US equities at this moment, would also require me to hold them as they revert to their mean....I have a long term view....2018-2021 is noise....And I make no claim to be able to offer any reliable prediction in the near term....
25% per year average annualized return for S&P 500 2019-2021, that's some noise! You were better off taking the returns and re-balancing. How far should the market fall from there to justify staying out for that long through that sort of good times for the market. I reckon at least 50% to just cancel out last three years, if not more. Anyone waiting for a 50% drop in market is deluding themselves.
Here's a little perspective which I guess nobody talks about on this forum, because it doesn't really fit the "narrative"

The following time periods represent how long it took for an inflation adjusted position in the SP500 with dividends reinvested to get back to break-even.

20 yrs. May 1901-Aug 1921.
20 yrs. Aug 1929–May 1949
15 yrs. Nov 1968-Mar 1983
13 yrs. Mar 2000- Jan 2013

As the most recent of these examples, you could have gotten out any time in the late 90s and had lots of opportunities to take another position at a better price anywhere during the 2009 period....In the mean time, note that the 10-year bond was yielding 5 or 6%...

I suppose there were lots of nobody-knows-nuttin folks taking victory laps towards the beginning of any of these periods, with just a few on the sidelines shouting that a train was heading right for them...
Hold your horses! That's just a lot of what we already know around here stuff. Let me clarify couple of things.

First, no one is ever saying a 50% drop is not possible or unlikely, we invest always based on the probability of something like that may happen again (as it has), in fact we should expect it could even drop 80% as it did during great depression then took 14 years to recover. But so what? you design your portfolio risk control using those knowledge, that is why you use a glidepath to more safety as you get closer to your goals. Market timing to 25% equities because you're afraid valuations are high is not a really great risk control measure, not one that also ensures you good probably of earning what the market gives during these exceptionally good years.

Second, if you timed out of market in 2018 and did not participate in the gains then you don't get to start the clock when eventually market drops to claim that it took X number of years to recover from there. You start the clock when you exited and compare how much you gained or lost by staying out on the sidelines compared to others who stayed fully invested according to their glidepath plan.

Third, it doesn't matter if the market took 13 years to recover from peak to trough if you were invested during the good years leading up to the peak, because the averages are made of the sum of all peaks and troughs. Since the absolute peak in 2000, the market still made about 7.5% on average, but that would require someone to just pop in with a large sum at that exact time and never invest or take any money out. Most people don't invest like that, so most people did better than worst case scenario if they were disciplined to follow a long term plan that takes advantage of compounding effects.

Fourth, it is not because others aren't concerned about high valuations or have a nobody knows nothing attitude that they don't do timing. Matter of fact, I do share concerns about high valuations just like any other person who is vocal about it here, I just don't act or in because I know I am not smart enough to pull it off and most importantly I don't need to pull something like that off in order to get to my goals. I also know that others who do this aren't smart enough either, but they somehow think they can get lucky, sometimes you could get lucky but that's not a strategy and most often it fails, like you're experiencing now. It will need a 50% or more drop for you to get even with the gains you didn't make during these 3 years when S&P 500 increased 99.95% on aggregate (26%+ annualized). This really is the reason many of us don't pull the plug on drastic AA changes like that, the chances of getting it right is extremely slim even when the valuations are screaming the opposite. Market has a way to prove us wrong, so we are better off taking the gains and then reducing exposure using our glidepath.

Lastly, and if you must, then at the minimum you should have a clear rule based strategy, not something based on feelings. Even those are unlikely to succeed, but it gives you a chance to say it measured up to what you expected it to be and you're comfortable with the risk/reward that lets you still meet your goals. If you're retired and/or wealthy enough that you figure you don't need the gains, then again no issues you may do what you want, but it cannot be applied to others who actually need exposed to risk in order to meet their goals.
This. Have a plan.
CraigTester
Posts: 1469
Joined: Wed Aug 08, 2018 6:34 am

Re: Bonds are for safety during stock market declines

Post by CraigTester »

Elysium wrote: Wed Jan 19, 2022 7:32 pm
CraigTester wrote: Wed Jan 19, 2022 11:11 am
Elysium wrote: Wed Jan 19, 2022 9:13 am
CraigTester wrote: Wed Jan 19, 2022 8:35 am I just can't bring myself to hold an asset that is priced at 2-3X it's intrinsic value. Any "rule" I can follow that would lead me to hold a high allocation of US equities at this moment, would also require me to hold them as they revert to their mean....I have a long term view....2018-2021 is noise....And I make no claim to be able to offer any reliable prediction in the near term....
25% per year average annualized return for S&P 500 2019-2021, that's some noise! You were better off taking the returns and re-balancing. How far should the market fall from there to justify staying out for that long through that sort of good times for the market. I reckon at least 50% to just cancel out last three years, if not more. Anyone waiting for a 50% drop in market is deluding themselves.
Here's a little perspective which I guess nobody talks about on this forum, because it doesn't really fit the "narrative"

The following time periods represent how long it took for an inflation adjusted position in the SP500 with dividends reinvested to get back to break-even.

20 yrs. May 1901-Aug 1921.
20 yrs. Aug 1929–May 1949
15 yrs. Nov 1968-Mar 1983
13 yrs. Mar 2000- Jan 2013

As the most recent of these examples, you could have gotten out any time in the late 90s and had lots of opportunities to take another position at a better price anywhere during the 2009 period....In the mean time, note that the 10-year bond was yielding 5 or 6%...

I suppose there were lots of nobody-knows-nuttin folks taking victory laps towards the beginning of any of these periods, with just a few on the sidelines shouting that a train was heading right for them...
Hold your horses! That's just a lot of what we already know around here stuff. Let me clarify couple of things.

First, no one is ever saying a 50% drop is not possible or unlikely, we invest always based on the probability of something like that may happen again (as it has), in fact we should expect it could even drop 80% as it did during great depression then took 14 years to recover. But so what? you design your portfolio risk control using those knowledge, that is why you use a glidepath to more safety as you get closer to your goals. Market timing to 25% equities because you're afraid valuations are high is not a really great risk control measure, not one that also ensures you greater probability of earning what the market gives during these exceptionally good years.

Second, if you timed out of market in 2018 and did not participate in the gains then you don't get to start the clock when eventually market drops to claim that it took X number of years to recover from there. You start the clock when you exited and compare how much you gained or lost by staying out on the sidelines compared to others who stayed fully invested according to their glidepath plan.

Third, it doesn't matter if the market took 13 years to recover from peak to trough if you were invested during the good years leading up to the peak, because the averages are made of the sum of all peaks and troughs. Since the absolute peak in 2000, the market still made about 7.5% on average, but that would require someone to just pop in with a large sum at that exact time and never invest or take any money out. Most people don't invest like that, so most people did better than worst case scenario if they were disciplined to follow a long term plan that takes advantage of compounding effects.

Fourth, it is not because others aren't concerned about high valuations or have a nobody knows nothing attitude that they don't do timing. Matter of fact, I do share concerns about high valuations just like any other person who is vocal about it here, I just don't act on it because I know the probability of pulling that off is very low and requires a lot of luck, more importantly I don't need to pull something like that off in order to get to my goals. There is a reasonable alternative. If you timed out to 25% equities before this exceptionally good 3 years, then it will need a 50% or more drop for you to get even with the gains you didn't make during these years when S&P 500 increased 99.95% on aggregate (26%+ annualized). This really is the reason many of us don't pull the plug on drastic AA changes like that, the chances of getting it right is extremely slim even when the valuations are screaming the opposite. Market has a way to prove us wrong, so we are better off taking the gains and then reducing exposure using our glidepath.

Lastly, and if you must, then at the minimum you should have a clear rule based strategy, not something based on feelings. Even those are unlikely to succeed, but it gives you a chance to say it measured up to what you expected it to be and you're comfortable with the risk/reward that lets you still meet your goals. If you're retired and/or wealthy enough that you figure you don't need the gains, then again no issues you may do what you want, but it cannot be applied to others who actually need exposed to risk in order to meet their goals.
There’s the Bogle way…and there’s the Ben Graham way.

Perhaps the “debate" comes by believing that in order for one way to work, the other must be wrong….

There are trade-off’s to either….

The Bogle way is simple and ultimately yields what the market gives…., but comes at the cost of sometimes requiring the practitioner to own assets that are significantly over-priced…and at other times, requiring very long wait-periods to get back to break even….

The Ben Graham way is definitely more work, but comes with the benefit of not requiring the practitioner to own assets when they are significantly over-valued…But at times, can require long wait-periods while “efficient” markets do their thing….There is more execution risk, but if done with patience, can produce outstanding results...

I think most of the “unsuccessful" stories you hear about either way, come when someone changes horses in the middle of the stream… because the other way is currently doing better….

The key, as I think all agree, is to understand the trade-offs of your chosen plan, and hang on tight...
User avatar
vanbogle59
Posts: 1314
Joined: Wed Mar 10, 2021 7:30 pm

Re: Will BND return be negative in 2022

Post by vanbogle59 »

nisiprius wrote: Thu Apr 29, 2021 8:45 pm
epictetus wrote: Sun Apr 25, 2021 6:22 pm...
if I recall correctly towards the end of his life Graham said in an interview he didn't think his approach would work anymore and he thought buying an index fund was the thing to do...
Original source, if you have access to JSTOR or a print business library:

A Conversation with Benjamin Graham, Financial Analysts Journal Vol. 32, No. 5 (Sep. - Oct., 1976), pp. 20-23 (4 pages).

Fairly widely available online, e.g. A Conversation with Benjamin Graham.

The parts you are thinking about might be:
Can the average manager of institutional funds obtain better results than the Dow Jones Industrial Average or the Standard & Poor's Index over the years?

No. In effect, that would mean that the stock market experts as a whole could beat themselves--a logical contradiction.
....
What about the objection made against so-called index funds that different investors have different requirements?

At bottom that is only a convenient cliche or alibi to justify the mediocre record of the past. All investors want good results from their investments, and are entitled to them to the extent that they are actually obtainable. I see no reason why they should be content with results inferior to those of an indexed fund or pay standard fees for such inferior results.
....
In selecting the common stock portfolio, do you advise careful study of and selectivity among different issues?

In general, no. I am no longer an advocate of elaborate techniques of security analysis in order to find superior value opportunities. This was a rewarding activity, say, 40 years ago, when our textbook "Graham and Dodd" was first published; but the situation has changed a great deal since then. In the old days any well-trained security analyst could do a good professional job of selecting undervalued issues through detailed studies; but in the light of the enormous amount of research now being carried on, I doubt whether in most cases such extensive efforts will generate sufficiently superior selections to justify their cost. To that very limited extent I'm on the side of the "efficient market" school of thought now generally accepted by the professors.
John C. Bogle often said, quoting Macbeth, that the short-term movements of the stock market are "a tale told by an idiot, full of sound and fury, signifying nothing." I just noticed that Graham said the same thing in the 1976 interview:
The Stock Exchanges appear to me chiefly as a John Bunyan type of Vanity Fair, or a Falstaffian joke, that frequently degenerates into a madhouse-"a tale full of sound and fury, signifying nothing."
Leesbro63
Posts: 10581
Joined: Mon Nov 08, 2010 3:36 pm

Re: Bonds are for safety during stock market declines

Post by Leesbro63 »

CraigTester wrote: Wed Jan 19, 2022 8:35 am
8 year rebalancing cycle has been clearly established as optimal if you are maximizing SWR....Maybe this time will be different, but that has been a long-established pattern.
Hi CraigTester: I really would like a reference for this. I even started another thread, "Rebalance Every 8 Years?" about this because I've never seen this. But it sounds like it might make sense. Can you please follow up on this and/or chime in on the other thread here:

viewtopic.php?f=10&t=368302&p=6461964#p6461964
Post Reply