20 Years for SP500 to Recover

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Topic Author
CraigTester
Posts: 1488
Joined: Wed Aug 08, 2018 6:34 am

Re: 20 Years for SP500 to Recover

Post by CraigTester »

retireIn2020 wrote: Tue Aug 16, 2022 12:50 am
CraigTester wrote: Tue Aug 09, 2022 1:55 pm I continue to see numerous misleading/misinformed claims throughout this forum, like:

"The SP500 recovered in several years after the great depression", or the "SP500 has always recovered in just a few years, stay the course, etc…"

And while these claims can sometimes be tortured to be sort of true (for an interim moment), they can be extremely misleading or sometimes just plain wrong.

And most importantly, they can perhaps lead some unsuspecting Bogleheads to sign up for more risk than they had intended/understood with their AA, etc...


So…, Rather than derail other threads when these types of claims are made, I thought it would be helpful to everyone to have the facts nailed down.

To that end, below are example periods of time when the SP500 required more than a decade to “permanently” exceed a previous high water mark.

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

Note that dividends are reinvested and returns are inflation adjusted. (Source: Shiller online data)

So I invite all the number crunchers out there to vet this data, argue about rounding error, cherry picking, etc....

But once we all agree on the math, perhaps we can add some version of this to the basic body of knowledge that all Bogleheads understand as they make their AA decisions, rebalancing schedules, lump sum decisions, etc.

All the best,

Craig Tester
Sorry OP, I have to question your data. Anyway, why are you gathering data from peak to peak without regard to any massive runup prior to the peak?
Or are you assuming that the average worker saves his entire life in cash then invests 100% in stocks at the peak of such a run up, then decides to retire?

You did not post your data, and I believe you're missing the div based on the dates. Also, a typical Boglehead would have 40-60% in Bonds near retirement so it would be a good idea to post that data as well with an overall return.

Here are a couple charts to consider.

S&P 500 price chart
Image
S&P Dividend chart
Image
I believe all these questions have already been answered multiple times through the thread.

Just read through it and let me know if you still have any questions.

All the best

CraigTester
Tellurius
Posts: 631
Joined: Mon Jul 23, 2018 6:42 pm

Re: 20 Years for SP500 to Recover

Post by Tellurius »

CraigTester wrote: Tue Aug 16, 2022 3:49 am
retireIn2020 wrote: Tue Aug 16, 2022 12:50 am
CraigTester wrote: Tue Aug 09, 2022 1:55 pm I continue to see numerous misleading/misinformed claims throughout this forum, like:

"The SP500 recovered in several years after the great depression", or the "SP500 has always recovered in just a few years, stay the course, etc…"

And while these claims can sometimes be tortured to be sort of true (for an interim moment), they can be extremely misleading or sometimes just plain wrong.

And most importantly, they can perhaps lead some unsuspecting Bogleheads to sign up for more risk than they had intended/understood with their AA, etc...


So…, Rather than derail other threads when these types of claims are made, I thought it would be helpful to everyone to have the facts nailed down.

To that end, below are example periods of time when the SP500 required more than a decade to “permanently” exceed a previous high water mark.

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

Note that dividends are reinvested and returns are inflation adjusted. (Source: Shiller online data)

So I invite all the number crunchers out there to vet this data, argue about rounding error, cherry picking, etc....

But once we all agree on the math, perhaps we can add some version of this to the basic body of knowledge that all Bogleheads understand as they make their AA decisions, rebalancing schedules, lump sum decisions, etc.

All the best,

Craig Tester
Sorry OP, I have to question your data. Anyway, why are you gathering data from peak to peak without regard to any massive runup prior to the peak?
Or are you assuming that the average worker saves his entire life in cash then invests 100% in stocks at the peak of such a run up, then decides to retire?

You did not post your data, and I believe you're missing the div based on the dates. Also, a typical Boglehead would have 40-60% in Bonds near retirement so it would be a good idea to post that data as well with an overall return.

Here are a couple charts to consider.

S&P 500 price chart
Image
S&P Dividend chart
Image
I believe all these questions have already been answered multiple times through the thread.

Just read through it and let me know if you still have any questions.

All the best

CraigTester
Thank you

Sorry for the trouble
“And how shall I think of you?' He considered a moment and then laughed. 'Think of me with my nose in a book!” | ― Susanna Clarke, Jonathan Strange & Mr Norrell
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retireIn2020
Posts: 745
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Re: 20 Years for SP500 to Recover

Post by retireIn2020 »

CraigTester wrote: Tue Aug 16, 2022 3:49 am
retireIn2020 wrote: Tue Aug 16, 2022 12:50 am
CraigTester wrote: Tue Aug 09, 2022 1:55 pm I continue to see numerous misleading/misinformed claims throughout this forum, like:

"The SP500 recovered in several years after the great depression", or the "SP500 has always recovered in just a few years, stay the course, etc…"

And while these claims can sometimes be tortured to be sort of true (for an interim moment), they can be extremely misleading or sometimes just plain wrong.

And most importantly, they can perhaps lead some unsuspecting Bogleheads to sign up for more risk than they had intended/understood with their AA, etc...


So…, Rather than derail other threads when these types of claims are made, I thought it would be helpful to everyone to have the facts nailed down.

To that end, below are example periods of time when the SP500 required more than a decade to “permanently” exceed a previous high water mark.

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

Note that dividends are reinvested and returns are inflation adjusted. (Source: Shiller online data)

So I invite all the number crunchers out there to vet this data, argue about rounding error, cherry picking, etc....

But once we all agree on the math, perhaps we can add some version of this to the basic body of knowledge that all Bogleheads understand as they make their AA decisions, rebalancing schedules, lump sum decisions, etc.

All the best,

Craig Tester
Sorry OP, I have to question your data. Anyway, why are you gathering data from peak to peak without regard to any massive runup prior to the peak?
Or are you assuming that the average worker saves his entire life in cash then invests 100% in stocks at the peak of such a run up, then decides to retire?

You did not post your data, and I believe you're missing the div based on the dates. Also, a typical Boglehead would have 40-60% in Bonds near retirement so it would be a good idea to post that data as well with an overall return.

Here are a couple charts to consider.

S&P 500 price chart
Image
S&P Dividend chart
Image
I believe all these questions have already been answered multiple times through the thread.

Just read through it and let me know if you still have any questions.

All the best

CraigTester
So, I read through all the posts, yet I do not see your data that backs up you're 20-year claim?
I posted data that says you are incorrect!
https://www.merriam-webster.com/dictionary/abide
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burritoLover
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Re: 20 Years for SP500 to Recover

Post by burritoLover »

CraigTester wrote: Mon Aug 15, 2022 11:23 am
burritoLover wrote: Mon Aug 15, 2022 10:42 am A lot of investors, even those who post in a forum like this, let recency bias rule the day regardless. Most have heard of the lost decade of US stocks (which ended on a nominal basis just 12 years ago) and they've definitely heard of the dot com bubble that preceded it, but what did they do post-COVID when tech growth stocks took off? They piled into QQQ, individual tech stocks, crypto, lowered their bond allocation, etc. saying "this time is different". They won't modify their portfolio knowing that the lost decade was actually 13 years for a real recovery or that a permanent real recovery of the Great Depression lasted 20 years. Even many of those who didn't fall for the tech FOMO were still exiting or reducing allocations to ex-US stocks due to recency bias. There's always some rationalization why isn't applicable to today but It is almost ALWAYS recency bias and that is never going to change.
Your above insight is exactly what motivated me to start this thread.....

In my real life, I've had way too many family members and friends come to me at moments when "it's too late" to de-risk their portfolios..... The conversations are never fun....

To that end, I fully understand that most (even many on this forum?) will probably just blow this topic off at a moment in time when we're at the tail of a record bull market in US equities....(As you say, recency bias)

But maybe there's one or two out there that would appreciate understanding what actually happened last time...

As discussed above, its not always in the media's best interest to explain that it took more than 4.5 years to recover from the Great Depression, etc... Much more exciting to talk about the latest Bitcoin or meme stock gazillionaire....

And as I mentioned in the OP, I've seen too many Bogleheads retelling misunderstood/distrorted versions of history to make a point....

So ideally, this thread, or some other version of it can become the short-cut place to refer people when these types of confusions get told in the future...
Sure - makes sense. I did not think in terms of a “permanent” recovery of the Great Depression - that is an interesting take on it. Swedroe’s often cited three consecutive 13-17 periods where US stocks underperformed t-bills is a good reminder as well presented another way on a nominal basis.
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firebirdparts
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Re: 20 Years for SP500 to Recover

Post by firebirdparts »

You all seem to be talking about two different subjects here, but I realize it doesn't matter what I think.

One subject is de-risking your portfolio "before it's too late". But somehow, if we say people are oh-so-stupid for failing that, that makes it okay to attack other people for re-risking their portfolios at such time that we deem proof of their inferiority. I'm just gonna think it's necessary and proper. If I was going to claim superiority, I could argue that all the other oh-so-dumb people think this time is different. That's an imaginary argument. I am willing to assume people are actually thinking this time is the same.

Anyway, it is what it is. I am just naturally skeptical of all-the-other-people-are-oh-do-dumb style arguments. I've just heard so many of them for so long now. It gets less convincing all the time. I don't understand the appeal of it.
This time is the same
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burritoLover
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Re: 20 Years for SP500 to Recover

Post by burritoLover »

firebirdparts wrote: Tue Aug 16, 2022 8:11 am You all seem to be talking about two different subjects here, but I realize it doesn't matter what I think.

One subject is de-risking your portfolio "before it's too late". But somehow, if we say people are oh-so-stupid for failing that, that makes it okay to attack other people for re-risking their portfolios at such time that we deem proof of their inferiority. I'm just gonna think it's necessary and proper. If I was going to claim superiority, I could argue that all the other oh-so-dumb people think this time is different. That's an imaginary argument. I am willing to assume people are actually thinking this time is the same.

Anyway, it is what it is. I am just naturally skeptical of all-the-other-people-are-oh-do-dumb style arguments. I've just heard so many of them for so long now. It gets less convincing all the time. I don't understand the appeal of it.
I don’t see any posters calling people dumb in this thread. If that’s what you are reading into it, perhaps it is more of Rorschach test colored by your own investment decisions?
Marseille07
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Re: 20 Years for SP500 to Recover

Post by Marseille07 »

burritoLover wrote: Tue Aug 16, 2022 8:59 am I don’t see any posters calling people dumb in this thread. If that’s what you are reading into it, perhaps it is more of Rorschach test colored by your own investment decisions?
I think this thread is quite good. De-risking-before-too-late is something I started exploring after reading this thread.

If you disregard taxes, it might be worthwhile...especially for the elderly folks who want to preserve their assets.
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burritoLover
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Re: 20 Years for SP500 to Recover

Post by burritoLover »

I’d be curious what the real bond returns were across different durations / credit during these long recovery periods for stocks.
marcopolo
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Re: 20 Years for SP500 to Recover

Post by marcopolo »

burritoLover wrote: Mon Aug 15, 2022 10:42 am A lot of investors, even those who post in a forum like this, let recency bias rule the day regardless. Most have heard of the lost decade of US stocks (which ended on a nominal basis just 12 years ago) and they've definitely heard of the dot com bubble that preceded it, but what did they do post-COVID when tech growth stocks took off? They piled into QQQ, individual tech stocks, crypto, lowered their bond allocation, etc. saying "this time is different". They won't modify their portfolio knowing that the lost decade was actually 13 years for a real recovery or that a permanent real recovery of the Great Depression lasted 20 years. Even many of those who didn't fall for the tech FOMO were still exiting or reducing allocations to ex-US stocks due to recency bias. There's always some rationalization why isn't applicable to today but It is almost ALWAYS recency bias and that is never going to change.
Interesting take on recency bias. Perhaps you are right to some degree. But, to be honest, the recency bias I have noticed is that everytime there is some market pullback people come out of the wood work to suggest the recent poor performance will continue for a long time. One day they might be right, but I really don't think it is due to some special insight they have that others are missing.

We see the same thing with inflation, we are having a bout of it now, and there have been multiple discussion of how we are going to have a decade of stagflation. You could argue that people who don't believe it will be long lasting have recency bias because we have not experienced it in a long time. I would argue that while it is certainly possible, the people who are claiming that, are doing so because that is what has happened most recently.

I guess the difference is short term vs. longer term recency bias.
Once in a while you get shown the light, in the strangest of places if you look at it right.
unemployed_pysicist
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Re: 20 Years for SP500 to Recover

Post by unemployed_pysicist »

burritoLover wrote: Tue Aug 16, 2022 10:07 am I’d be curious what the real bond returns were across different durations / credit during these long recovery periods for stocks.
Here is the companion calculator for the ten year treasury total return:

https://dqydj.com/treasury-return-calculator/

It uses Shiller's dataset as well.
Here are the annualized real returns over the periods from the original post:

May 1901-Aug 1921: -0.367%
Aug 1929–May 1949: 1.11%
Nov 1968-Mar 1983: 0.948%
Mar 2000- Jan 2013: 2.173%

I think the Shiller ten year returns assume flat term structure and no bid ask spread. I suspect the actual, real return of a ten year note rolled monthly was probably lower than the numbers shown above.

For other durations or credit ratings, maybe the Simba backtest spreadsheet could be used, at least for yearly returns.
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nigel_ht
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Re: 20 Years for SP500 to Recover

Post by nigel_ht »

Marseille07 wrote: Tue Aug 16, 2022 10:05 am
burritoLover wrote: Tue Aug 16, 2022 8:59 am I don’t see any posters calling people dumb in this thread. If that’s what you are reading into it, perhaps it is more of Rorschach test colored by your own investment decisions?
I think this thread is quite good. De-risking-before-too-late is something I started exploring after reading this thread.

If you disregard taxes, it might be worthwhile...especially for the elderly folks who want to preserve their assets.
The BH way is to de-risk as part of life phase vs whatever the market happens to be doing...someone planning on retiring in 2022 should have started de-risking years ago.

To a great extent the topic isn't very actionable. The OP is railing against the common forum platitude of "SP500 has always recovered in just a few years, stay the course, etc…".

If the objection is merely that "just a few years" is sometimes incorrect my response is still largely "so what? TINA". I don't think anyone has provided what the suggested alternative is...

There are three general scenarios: Accumulation, Transition and Retirement

Accumulation:

If I have a over decade of accumulation period left then the fact that sometimes it takes 20 years isn't important unless you believe that there is a better asset class than stocks to invest in over the long haul. It's just a buying opportunity.

"Stay the course" is the right advice for an accumulator with decades to go even for Nikkei in 1990...while Nikkei hasn't recovered its highs the money pumped in after the crash did gain over the long haul.

Transition:

A common transition phase from accumulation to retirement is around 10 years. Eyeballing retirein2020's chart above...for the transition and retirement phase, someone who reached FI around age 55 and started de-risking in 1920 did fine retiring in 1930 at age 65. By 1930 you've finished your 10 year de-risk ramp...just in time.

"Stay the course" got you here...why change now?

The bubble giveth and the bubble taketh away but the actual impact of 1929 and the Great Depression was fairly mild for you. 5 years of your savings, yes, probably your best 5 years of savings, ended up greatly diminished for 20 years but the bulk of your portfolio recovered in a few years to 1920-1925 levels. If you treat the money has first in, first out your 1925-1930 money had 25 years to recover in a 30 year retirement.

In the worst case you hit 55 in 1930 and started your 10 year de-risking ramp too late...the horses are gone, the barn door are still swinging wide open. Your 1940 retirement date looks suspect but if you didn't lose your job you have 10 years of rebuilding and buying into the market at discount rates. Without running the numbers my guess is that it turns out okay.

So again, not very actionable and "Stay the course" is STILL the right thing to say.

Retirement:

You should be holding a fairly conservative risk level and whatever SORR mitigations you are comfortable with. It might be tough but SWR accounts for the worst historical case and even if you aren't using SWR as a withdrawal strategy you probably at least considered the historical worst case scenario...so that some recoveries take longer should already be factored in.

Stay the course is, not surprisingly, is IMHO the right advice here as well.

Whether the OP is calling people "dumb" or not is in the eye of the beholder but he certainly claims that telling folks to stay the course because the market recovers is "extremely misleading or sometimes just plain wrong". I think that assertion is going to get some push back and requires a higher level of evidence than re-stating the obvious.

If you don't believe that the market will recover for the foreseeable future and that "stay the course" is misleading or wrong advice then you need to find a different path than what Bogleheads suggest because that's the underpinning of passive buy and hold.
Marseille07
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Re: 20 Years for SP500 to Recover

Post by Marseille07 »

nigel_ht wrote: Tue Aug 16, 2022 12:16 pm
Marseille07 wrote: Tue Aug 16, 2022 10:05 am
burritoLover wrote: Tue Aug 16, 2022 8:59 am I don’t see any posters calling people dumb in this thread. If that’s what you are reading into it, perhaps it is more of Rorschach test colored by your own investment decisions?
I think this thread is quite good. De-risking-before-too-late is something I started exploring after reading this thread.

If you disregard taxes, it might be worthwhile...especially for the elderly folks who want to preserve their assets.
The BH way is to de-risk as part of life phase vs whatever the market happens to be doing...someone planning on retiring in 2022 should have started de-risking years ago.

To a great extent the topic isn't very actionable. The OP is railing against the common forum platitude of "SP500 has always recovered in just a few years, stay the course, etc…".

If the objection is merely that "just a few years" is sometimes incorrect my response is still largely "so what? TINA". I don't think anyone has provided what the suggested alternative is...

There are three general scenarios: Accumulation, Transition and Retirement

Accumulation:

If I have a over decade of accumulation period left then the fact that sometimes it takes 20 years isn't important unless you believe that there is a better asset class than stocks to invest in over the long haul. It's just a buying opportunity.

"Stay the course" is the right advice for an accumulator with decades to go even for Nikkei in 1990...while Nikkei hasn't recovered its highs the money pumped in after the crash did gain over the long haul.

Transition:

A common transition phase from accumulation to retirement is around 10 years. Eyeballing retirein2020's chart above...for the transition and retirement phase, someone who reached FI around age 55 and started de-risking in 1920 did fine retiring in 1930 at age 65. By 1930 you've finished your 10 year de-risk ramp...just in time.

"Stay the course" got you here...why change now?

The bubble giveth and the bubble taketh away but the actual impact of 1929 and the Great Depression was fairly mild for you. 5 years of your savings, yes, probably your best 5 years of savings, ended up greatly diminished for 20 years but the bulk of your portfolio recovered in a few years to 1920-1925 levels. If you treat the money has first in, first out your 1925-1930 money had 25 years to recover in a 30 year retirement.

In the worst case you hit 55 in 1930 and started your 10 year de-risking ramp too late...the horses are gone, the barn door are still swinging wide open. Your 1940 retirement date looks suspect but if you didn't lose your job you have 10 years of rebuilding and buying into the market at discount rates. Without running the numbers my guess is that it turns out okay.

So again, not very actionable and "Stay the course" is STILL the right thing to say.

Retirement:

You should be holding a fairly conservative risk level and whatever SORR mitigations you are comfortable with. It might be tough but SWR accounts for the worst historical case and even if you aren't using SWR as a withdrawal strategy you probably at least considered the historical worst case scenario...so that some recoveries take longer should already be factored in.

Stay the course is, not surprisingly, is IMHO the right advice here as well.

Whether the OP is calling people "dumb" or not is in the eye of the beholder but he certainly claims that telling folks to stay the course because the market recovers is "extremely misleading or sometimes just plain wrong". I think that assertion is going to get some push back and requires a higher level of evidence than re-stating the obvious.

If you don't believe that the market will recover for the foreseeable future and that "stay the course" is misleading or wrong advice then you need to find a different path than what Bogleheads suggest because that's the underpinning of passive buy and hold.
I totally agree in Accumulation and perhaps in Transition. Where we disagree is in Retirement. And the topic of discussion isn't whether SWR holds or not (though this is certainly related), the question is why should you B&H through a huge downturn when you could have gotten out at -10%~-15%.

The problem with the Bogleheads philosophy in this aspect is that if I dislike a -10% DD, my allocation has to be 20/80. But the thing is, the risk tolerance table is generated on a huge crash like 2008; so if I go 20/80 during "normal" times, it'd be too conservative. This is where the idea of "moving to safe assets" comes into play.
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burritoLover
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Re: 20 Years for SP500 to Recover

Post by burritoLover »

unemployed_pysicist wrote: Tue Aug 16, 2022 12:01 pm
burritoLover wrote: Tue Aug 16, 2022 10:07 am I’d be curious what the real bond returns were across different durations / credit during these long recovery periods for stocks.
Here is the companion calculator for the ten year treasury total return:

https://dqydj.com/treasury-return-calculator/

It uses Shiller's dataset as well.
Here are the annualized real returns over the periods from the original post:

May 1901-Aug 1921: -0.367%
Aug 1929–May 1949: 1.11%
Nov 1968-Mar 1983: 0.948%
Mar 2000- Jan 2013: 2.173%

I think the Shiller ten year returns assume flat term structure and no bid ask spread. I suspect the actual, real return of a ten year note rolled monthly was probably lower than the numbers shown above.

For other durations or credit ratings, maybe the Simba backtest spreadsheet could be used, at least for yearly returns.
Wow that’s interesting
marcopolo
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Re: 20 Years for SP500 to Recover

Post by marcopolo »

Marseille07 wrote: Tue Aug 16, 2022 12:39 pm
nigel_ht wrote: Tue Aug 16, 2022 12:16 pm
Marseille07 wrote: Tue Aug 16, 2022 10:05 am
burritoLover wrote: Tue Aug 16, 2022 8:59 am I don’t see any posters calling people dumb in this thread. If that’s what you are reading into it, perhaps it is more of Rorschach test colored by your own investment decisions?
I think this thread is quite good. De-risking-before-too-late is something I started exploring after reading this thread.

If you disregard taxes, it might be worthwhile...especially for the elderly folks who want to preserve their assets.
The BH way is to de-risk as part of life phase vs whatever the market happens to be doing...someone planning on retiring in 2022 should have started de-risking years ago.

To a great extent the topic isn't very actionable. The OP is railing against the common forum platitude of "SP500 has always recovered in just a few years, stay the course, etc…".

If the objection is merely that "just a few years" is sometimes incorrect my response is still largely "so what? TINA". I don't think anyone has provided what the suggested alternative is...

There are three general scenarios: Accumulation, Transition and Retirement

Accumulation:

If I have a over decade of accumulation period left then the fact that sometimes it takes 20 years isn't important unless you believe that there is a better asset class than stocks to invest in over the long haul. It's just a buying opportunity.

"Stay the course" is the right advice for an accumulator with decades to go even for Nikkei in 1990...while Nikkei hasn't recovered its highs the money pumped in after the crash did gain over the long haul.

Transition:

A common transition phase from accumulation to retirement is around 10 years. Eyeballing retirein2020's chart above...for the transition and retirement phase, someone who reached FI around age 55 and started de-risking in 1920 did fine retiring in 1930 at age 65. By 1930 you've finished your 10 year de-risk ramp...just in time.

"Stay the course" got you here...why change now?

The bubble giveth and the bubble taketh away but the actual impact of 1929 and the Great Depression was fairly mild for you. 5 years of your savings, yes, probably your best 5 years of savings, ended up greatly diminished for 20 years but the bulk of your portfolio recovered in a few years to 1920-1925 levels. If you treat the money has first in, first out your 1925-1930 money had 25 years to recover in a 30 year retirement.

In the worst case you hit 55 in 1930 and started your 10 year de-risking ramp too late...the horses are gone, the barn door are still swinging wide open. Your 1940 retirement date looks suspect but if you didn't lose your job you have 10 years of rebuilding and buying into the market at discount rates. Without running the numbers my guess is that it turns out okay.

So again, not very actionable and "Stay the course" is STILL the right thing to say.

Retirement:

You should be holding a fairly conservative risk level and whatever SORR mitigations you are comfortable with. It might be tough but SWR accounts for the worst historical case and even if you aren't using SWR as a withdrawal strategy you probably at least considered the historical worst case scenario...so that some recoveries take longer should already be factored in.

Stay the course is, not surprisingly, is IMHO the right advice here as well.

Whether the OP is calling people "dumb" or not is in the eye of the beholder but he certainly claims that telling folks to stay the course because the market recovers is "extremely misleading or sometimes just plain wrong". I think that assertion is going to get some push back and requires a higher level of evidence than re-stating the obvious.

If you don't believe that the market will recover for the foreseeable future and that "stay the course" is misleading or wrong advice then you need to find a different path than what Bogleheads suggest because that's the underpinning of passive buy and hold.
I totally agree in Accumulation and perhaps in Transition. Where we disagree is in Retirement. And the topic of discussion isn't whether SWR holds or not (though this is certainly related), the question is why should you B&H through a huge downturn when you could have gotten out at -10%~-15%.

The problem with the Bogleheads philosophy in this aspect is that if I dislike a -10% DD, my allocation has to be 20/80. But the thing is, the risk tolerance table is generated on a huge crash like 2008; so if I go 20/80 during "normal" times, it'd be too conservative. This is where the idea of "moving to safe assets" comes into play.

Because, except for a few self-proclaimed prescient people, you don't know that it is a huge downturn when it is down 10%-15%.

I recognize i am not smart enough to time such moves, so I B&H through the down turns. Did so through 2000-2013 "recovery" period, 2018, 2020, and 2022, I am sure there were others along the way as well, it has still worked out quite well.

Perhaps you are another one of those people that believe they have the special ability to profitably time the market exit and entry points.
If so, good luck to you.

Some people have been waiting for a decade for the "big one', even when it comes (i have no doubt we will have more large draw downs in the future), it is not clear they will come out ahead.
Once in a while you get shown the light, in the strangest of places if you look at it right.
Marseille07
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Re: 20 Years for SP500 to Recover

Post by Marseille07 »

marcopolo wrote: Tue Aug 16, 2022 1:14 pm Because, except for a few self-proclaimed prescient people, you don't know that it is a huge downturn when it is down 10%-15%.

I recognize i am not smart enough to time such moves, so I B&H through the down turns. Did so through 2000-2013 "recovery" period, 2018, 2020, and 2022, I am sure there were others along the way as well, it has still worked out quite well.

Perhaps you are another one of those people that believe they have the special ability to profitably time the market exit and entry points.
If so, good luck to you.

Some people have been waiting for a decade for the "big one', even when it comes (i have no doubt we will have more large draw downs in the future), it is not clear they will come out ahead.
This has little to do with timing. When the market drops X% (say, 15%) you get out. If the market goes above 15%, you get back in so that you don't miss much if at all. If you disregard tax consequences, it's not difficult to do.
Last edited by Marseille07 on Tue Aug 16, 2022 1:25 pm, edited 1 time in total.
doss
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Re: 20 Years for SP500 to Recover

Post by doss »

Looking good for the S&P500....lets soar!
“ The long-term 9%-10% nominal return of the stock market INCLUDES the crashes.” — calvin+hobbs
marcopolo
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Re: 20 Years for SP500 to Recover

Post by marcopolo »

Marseille07 wrote: Tue Aug 16, 2022 1:20 pm
marcopolo wrote: Tue Aug 16, 2022 1:14 pm Because, except for a few self-proclaimed prescient people, you don't know that it is a huge downturn when it is down 10%-15%.

I recognize i am not smart enough to time such moves, so I B&H through the down turns. Did so through 2000-2013 "recovery" period, 2018, 2020, and 2022, I am sure there were others along the way as well, it has still worked out quite well.

Perhaps you are another one of those people that believe they have the special ability to profitably time the market exit and entry points.
If so, good luck to you.

Some people have been waiting for a decade for the "big one', even when it comes (i have no doubt we will have more large draw downs in the future), it is not clear they will come out ahead.
This has nothing to do with timing. When the market drops X% (say, 15%) you get out. If the market goes above 15%, you get back in so that you don't miss much if at all. If you disregard tax consequences, it's not difficult to do.
Sounds so simple, I wonder why more people don't consistently outperform the market doing this?

Did you just have this epiphany, or have you been practicing it for a while? How has it worked out?
Once in a while you get shown the light, in the strangest of places if you look at it right.
Marseille07
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Re: 20 Years for SP500 to Recover

Post by Marseille07 »

marcopolo wrote: Tue Aug 16, 2022 1:26 pm Sounds so simple, I wonder why more people don't consistently outperform the market doing this?

Did you just have this epiphany, or have you been practicing it for a while? How has it worked out?
The goal is not to beat the market, it is to cut down your DD at -15% (or whatever you decide) instead of -50% while matching B&H performance.
marcopolo
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Re: 20 Years for SP500 to Recover

Post by marcopolo »

Marseille07 wrote: Tue Aug 16, 2022 1:27 pm
marcopolo wrote: Tue Aug 16, 2022 1:26 pm Sounds so simple, I wonder why more people don't consistently outperform the market doing this?

Did you just have this epiphany, or have you been practicing it for a while? How has it worked out?
The goal is not to beat the market, it is to cut down your DD at -15% (or whatever you decide) instead of -50% while matching B&H performance.
You could just lower your equity allocation permanently when you want to keep volatility lower, like in decumulation phase.
Once in a while you get shown the light, in the strangest of places if you look at it right.
Marseille07
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Re: 20 Years for SP500 to Recover

Post by Marseille07 »

marcopolo wrote: Tue Aug 16, 2022 1:42 pm You could just lower your equity allocation permanently when you want to keep volatility lower, like in decumulation phase.
As I mentioned upthread, if I dislike a DD of -15% then I have to be at 20/80 because the tolerance table is based off of a big crash like 2008. But that's too conservative.

This is where the notion of moving-to-cash-after-X%-DD comes into play.
McQ
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Location: California

Re: 20 Years for SP500 to Recover

Post by McQ »

unemployed_pysicist wrote: Tue Aug 16, 2022 12:01 pm
burritoLover wrote: Tue Aug 16, 2022 10:07 am I’d be curious what the real bond returns were across different durations / credit during these long recovery periods for stocks.
Here is the companion calculator for the ten year treasury total return:

https://dqydj.com/treasury-return-calculator/

It uses Shiller's dataset as well.
Here are the annualized real returns over the periods from the original post:

May 1901-Aug 1921: -0.367%
Aug 1929–May 1949: 1.11%
Nov 1968-Mar 1983: 0.948%
Mar 2000- Jan 2013: 2.173%

I think the Shiller ten year returns assume flat term structure and no bid ask spread. I suspect the actual, real return of a ten year note rolled monthly was probably lower than the numbers shown above.

For other durations or credit ratings, maybe the Simba backtest spreadsheet could be used, at least for yearly returns.
Cautionary note and warning: Shiller’s 10-year Treasury returns are not based on observed bond prices for that maturity before about 1970.

That’s because 10-year Treasuries were not regularly issued before the 1970s. There are scattered instances from 1917 to 1970, but there are numerous lengthy gaps where no Treasury had exactly ten years to maturity, and there wasn’t another such to roll into the next year.

Between 1865 and 1917 none of the few Treasuries in existence are used in historical accounts (see Homer and Sylla, History of Interest Rates, for an explanation).

Shiller’s series is assembled from a mix of other non-Treasury bonds and yield curve interpolation. If you want the details, here is a dialogue with SimpleGift (Shiller’s 1-year Treasury series also is not that). viewtopic.php?p=6131409#p6131409

Shiller’s series are perfectly adequate for academic use, but they are misleadingly labelled if you haven’t spent years studying bond market history.
I can supply real bond returns on an annual basis back to 1793, but they won’t always be Treasuries and they will almost always be long bonds. Because intermediate maturities are also a creature of recent decades.

Last, Shiller’s stock series is fine. I spent six months beating on the 1871-1897 portion, adding back what Cowles had left out and rebuilding the dividend record from scratch. Barely budged the annual return. My criticisms in this post are limited to his "Treasury" series.
You can take the academic out of the classroom by retirement, but you can't ever take the classroom out of his tone, style, and manner of approach.
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Re: 20 Years for SP500 to Recover

Post by nigel_ht »

Marseille07 wrote: Tue Aug 16, 2022 1:27 pm
marcopolo wrote: Tue Aug 16, 2022 1:26 pm Sounds so simple, I wonder why more people don't consistently outperform the market doing this?

Did you just have this epiphany, or have you been practicing it for a while? How has it worked out?
The goal is not to beat the market, it is to cut down your DD at -15% (or whatever you decide) instead of -50% while matching B&H performance.
I don't think you end up matching B&H performance if you get whipsawed for a decade...TANSTAAFL...

Maybe you can show a worst case period where you still end up beading B&H anyway?
marcopolo
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Re: 20 Years for SP500 to Recover

Post by marcopolo »

nigel_ht wrote: Tue Aug 16, 2022 4:31 pm
Marseille07 wrote: Tue Aug 16, 2022 1:27 pm
marcopolo wrote: Tue Aug 16, 2022 1:26 pm Sounds so simple, I wonder why more people don't consistently outperform the market doing this?

Did you just have this epiphany, or have you been practicing it for a while? How has it worked out?
The goal is not to beat the market, it is to cut down your DD at -15% (or whatever you decide) instead of -50% while matching B&H performance.
I don't think you end up matching B&H performance if you get whipsawed for a decade...TANSTAAFL...

Maybe you can show a worst case period where you still end up beading B&H anyway?
Maybe he has discovered the latest "Equity like returns, with bond like volatility" shiney new object.
Once in a while you get shown the light, in the strangest of places if you look at it right.
Marseille07
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Re: 20 Years for SP500 to Recover

Post by Marseille07 »

nigel_ht wrote: Tue Aug 16, 2022 4:31 pm I don't think you end up matching B&H performance if you get whipsawed for a decade...TANSTAAFL...

Maybe you can show a worst case period where you still end up beading B&H anyway?
You don't get whipsawed for a decade. If you hold cash at SPX below 4300, hold VOO above 4300...some trades are required but not that many (for example you'd be going from cash to VOO today if you traded this way...first trade since April).

And I'll repeat, the point is not to beat B&H, it is to cut down your drawdown.
Topic Author
CraigTester
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Re: 20 Years for SP500 to Recover

Post by CraigTester »

nigel_ht wrote: Tue Aug 16, 2022 12:16 pm
Marseille07 wrote: Tue Aug 16, 2022 10:05 am
burritoLover wrote: Tue Aug 16, 2022 8:59 am I don’t see any posters calling people dumb in this thread. If that’s what you are reading into it, perhaps it is more of Rorschach test colored by your own investment decisions?
I think this thread is quite good. De-risking-before-too-late is something I started exploring after reading this thread.

If you disregard taxes, it might be worthwhile...especially for the elderly folks who want to preserve their assets.
The BH way is to de-risk as part of life phase vs whatever the market happens to be doing...someone planning on retiring in 2022 should have started de-risking years ago.

To a great extent the topic isn't very actionable. The OP is railing against the common forum platitude of "SP500 has always recovered in just a few years, stay the course, etc…".

If the objection is merely that "just a few years" is sometimes incorrect my response is still largely "so what? TINA". I don't think anyone has provided what the suggested alternative is...

There are three general scenarios: Accumulation, Transition and Retirement

Accumulation:

If I have a over decade of accumulation period left then the fact that sometimes it takes 20 years isn't important unless you believe that there is a better asset class than stocks to invest in over the long haul. It's just a buying opportunity.

"Stay the course" is the right advice for an accumulator with decades to go even for Nikkei in 1990...while Nikkei hasn't recovered its highs the money pumped in after the crash did gain over the long haul.

Transition:

A common transition phase from accumulation to retirement is around 10 years. Eyeballing retirein2020's chart above...for the transition and retirement phase, someone who reached FI around age 55 and started de-risking in 1920 did fine retiring in 1930 at age 65. By 1930 you've finished your 10 year de-risk ramp...just in time.

"Stay the course" got you here...why change now?

The bubble giveth and the bubble taketh away but the actual impact of 1929 and the Great Depression was fairly mild for you. 5 years of your savings, yes, probably your best 5 years of savings, ended up greatly diminished for 20 years but the bulk of your portfolio recovered in a few years to 1920-1925 levels. If you treat the money has first in, first out your 1925-1930 money had 25 years to recover in a 30 year retirement.

In the worst case you hit 55 in 1930 and started your 10 year de-risking ramp too late...the horses are gone, the barn door are still swinging wide open. Your 1940 retirement date looks suspect but if you didn't lose your job you have 10 years of rebuilding and buying into the market at discount rates. Without running the numbers my guess is that it turns out okay.

So again, not very actionable and "Stay the course" is STILL the right thing to say.

Retirement:

You should be holding a fairly conservative risk level and whatever SORR mitigations you are comfortable with. It might be tough but SWR accounts for the worst historical case and even if you aren't using SWR as a withdrawal strategy you probably at least considered the historical worst case scenario...so that some recoveries take longer should already be factored in.

Stay the course is, not surprisingly, is IMHO the right advice here as well.

Whether the OP is calling people "dumb" or not is in the eye of the beholder but he certainly claims that telling folks to stay the course because the market recovers is "extremely misleading or sometimes just plain wrong". I think that assertion is going to get some push back and requires a higher level of evidence than re-stating the obvious.

If you don't believe that the market will recover for the foreseeable future and that "stay the course" is misleading or wrong advice then you need to find a different path than what Bogleheads suggest because that's the underpinning of passive buy and hold.
As a for instance, you've been asked to help a friend with setting his AA for retirement.

He comes to you all excited....

He just read a NYT article saying the SP500 grows at 10% per year.... and even after the Great Depression, it recovered in only 4.5 years.....

He does some math in his head, smiles, and asks if you think he's being too conservative to put 4.5 years cash in a safe mm account and throw the rest in stocks....

The next day your 22 year old niece says she's very risk averse..., but as a new nurse..., keeps reading on CNBC that she should invest most of her paycheck in the stock market....

She explains that she understands that stocks can be risky.... And hopes we don't get another March 2020 situation where you have to wait for several months for the government to fix the stock market again....

You then log on to Bogleheads and see multiple posters in heated exchanges about all sorts of esoteric things....

Tempers flare, and as one really strives to win the argument, he slips in these little sentences, explaining that even if the stock market goes down, it never lasts for more than a few years....

He goes on to proclaim that your just about guaranteed to make 10% per year if you just stay the course.... Nobody knows nuttin so just do what all these other people are doing and don't ask too many questions....

You try to interject a comment explaining that it can take 20 years to recover,

But he just says meh, you're not including dividends, you made a math error, etc....

Your wife calls you for dinner and you never get to correct the false statements....

So you decide to write a post explaining that markets really can take 20 years to recover, etc, etc....

But people don't like what you're saying so they try to find holes in your data by showing you a long term Nominal stock chart.....and say, "see, it always goes up, your data is wrong...." Or claim you didn't include dividends....

Others attempt to discredit you for being a "market timer" and then post public service announcements to make sure others aren't persuaded by your gibberish....

And finally, someone takes the bull by the horn and states that none of this historical data stuff is "actionable"....

All the Best,

Craig Tester
nigel_ht
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Re: 20 Years for SP500 to Recover

Post by nigel_ht »

CraigTester wrote: Tue Aug 16, 2022 8:47 pm
As a for instance, you've been asked to help a friend with setting his AA for retirement.

He comes to you all excited....

He just read a NYT article saying the SP500 grows at 10% per year.... and even after the Great Depression, it recovered in only 4.5 years.....

He does some math in his head, smiles, and asks if you think he's being too conservative to put 4.5 years cash in a safe mm account and throw the rest in stocks....
This is not what is recommended on the BH wiki regarding investment philosophy, asset allocation and risk assessement.

https://www.bogleheads.org/wiki/Boglehe ... philosophy
https://www.bogleheads.org/wiki/Asset_allocation

Assuming he has 25x...it's 20.5X equities and 4.5X fixed income or 80/20 (okay 82/18) which some folks will do in retirement.

Is it conservative for a 30 year retirement with 25x? No.

If he has 50x...yah, he's fine. At a 2% WR it doesn't really matter if he's 90/10. It's automatically "conservative" because he could have retired a while ago and he has a 2x what you needed for the historical worst case. That's a lot of margin for error.

There's no "gotcha" here because conservative and aggressive is relative.
The next day your 22 year old niece says she's very risk averse..., but as a new nurse..., keeps reading on CNBC that she should invest most of her paycheck in the stock market....

She explains that she understands that stocks can be risky.... And hopes we don't get another March 2020 situation where you have to wait for several months for the government to fix the stock market again....
Nothing wrong with investing most of her paycheck in the stock market.

You then point her at the above wiki pages regarding passive index investing, LBYM, risk tolerance, etc. At some point someone will explain that 2020 was amazingly fast and 2008 sucked a lot more. Given this is a common refrain in the forum, it shouldn't take too long for her to encounter that.

When she builds her IPS she can take into account how risk adverse she feels she is.

Again, no "gotcha" here either. Someone early career isn't incurring a lot of risk being 100/0 with an EF because their time horizon is long. She can choose some other AA but her circumstances is inherently low risk because her human capital is high. Her future earnings provides a tremendous amount of risk mitigation.
You then log on to Bogleheads and see multiple posters in heated exchanges about all sorts of esoteric things....

Tempers flare, and as one really strives to win the argument, he slips in these little sentences, explaining that even if the stock market goes down, it never lasts for more than a few years....

He goes on to proclaim that your just about guaranteed to make 10% per year if you just stay the course.... Nobody knows nuttin so just do what all these other people are doing and don't ask too many questions....

You try to interject a comment explaining that it can take 20 years to recover,

But he just says meh, you're not including dividends, you made a math error, etc....

Your wife calls you for dinner and you never get to correct the false statements....

So you decide to write a post explaining that markets really can take 20 years to recover, etc, etc....
Link required.
But people don't like what you're saying so they try to find holes in your data by showing you a long term Nominal stock chart.....and say, "see, it always goes up, your data is wrong...." Or claim you didn't include dividends....
Perhaps people simply disagree with your opinion that Bogleheads is somehow a source of misinformation...I think you seriously mischaracterize the general opinion of the forum.

If anything BH tends to be very conservative and the mantra is be ready for a 50% (or more) drop anytime and that it could last a while. That you only know your true risk tolerance when you have a large portfolio in a 2008 scenario. That 2020 was too quick of a crash to test your real tolerance.

So all that stuff above is straw man.
Others attempt to discredit you for being a "market timer" and then post public service announcements to make sure others aren't persuaded by your gibberish....

And finally, someone takes the bull by the horn and states that none of this historical data stuff is "actionable"....

All the Best,

Craig Tester
Maybe because if you follow the BH philosophy it really ISN'T actionable because the mantra is to "Don't do something, Just stand there!"

If you have an IPS and done a reasonable job assessing your risk tolerance and picked an AA based on your risk assessment then the fact that the market can crash hard and stay crashed a long time has already been factored into your thinking. The 1929 scenarios will already be factored in. It's factored into SWR. It's factored into VPW. It's factored into ABW. It's factored into the basic BH philosophy that time in market tends to fix many ills. It's factored into the need to ramp from your accumulation AA to your retirement AA. It's factored into the need to consider SORR.

Everything is already based on historical data stuff with a leavening of investment/economic theory which is itself based on historical data stuff.

Even if you don't understand that stocks can crash and stay down for 20 years the basic tenets/rules of thumb/best practices/etc have factored that possibility in there.

And as far as I can tell, nobody has called you a market timer.
Marseille07
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Re: 20 Years for SP500 to Recover

Post by Marseille07 »

nigel_ht wrote: Tue Aug 16, 2022 11:39 pm If you have an IPS and done a reasonable job assessing your risk tolerance and picked an AA based on your risk assessment then the fact that the market can crash hard and stay crashed a long time has already been factored into your thinking. The 1929 scenarios will already be factored in. It's factored into SWR. It's factored into VPW. It's factored into ABW. It's factored into the basic BH philosophy that time in market tends to fix many ills. It's factored into the need to ramp from your accumulation AA to your retirement AA. It's factored into the need to consider SORR.

Everything is already based on historical data stuff with a leavening of investment/economic theory which is itself based on historical data stuff.

Even if you don't understand that stocks can crash and stay down for 20 years the basic tenets/rules of thumb/best practices/etc have factored that possibility in there.

And as far as I can tell, nobody has called you a market timer.
It's factored into SWR. VPW / ABW or even constant-percentage, I'm not so sure. While the portfolio longevity is guaranteed, 50% portfolio flexibility is a tall order. To some extent, my plan is to just wing it, hoping to not run into 1929 right off the bat. Probably will work out fine, but not because it is factored in.
nigel_ht
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Re: 20 Years for SP500 to Recover

Post by nigel_ht »

Marseille07 wrote: Tue Aug 16, 2022 11:51 pm
nigel_ht wrote: Tue Aug 16, 2022 11:39 pm If you have an IPS and done a reasonable job assessing your risk tolerance and picked an AA based on your risk assessment then the fact that the market can crash hard and stay crashed a long time has already been factored into your thinking. The 1929 scenarios will already be factored in. It's factored into SWR. It's factored into VPW. It's factored into ABW. It's factored into the basic BH philosophy that time in market tends to fix many ills. It's factored into the need to ramp from your accumulation AA to your retirement AA. It's factored into the need to consider SORR.

Everything is already based on historical data stuff with a leavening of investment/economic theory which is itself based on historical data stuff.

Even if you don't understand that stocks can crash and stay down for 20 years the basic tenets/rules of thumb/best practices/etc have factored that possibility in there.

And as far as I can tell, nobody has called you a market timer.
It's factored into SWR. VPW / ABW or even constant-percentage, I'm not so sure. While the portfolio longevity is guaranteed, 50% portfolio flexibility is a tall order. To some extent, my plan is to just wing it, hoping to not run into 1929 right off the bat. Probably will work out fine, but not because it is factored in.
Ah, you're right I think...
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burritoLover
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Re: 20 Years for SP500 to Recover

Post by burritoLover »

CraigTester wrote: Tue Aug 16, 2022 8:47 pm Others attempt to discredit you for being a "market timer" and then post public service announcements to make sure others aren't persuaded by your gibberish....
I assume that is directed at me. I guess you didn’t understand my point as it had nothing to do with discrediting anyone (which is a bit melodramatic). In numerous other threads, you are clearly market timing based on valuations so it is ironic that you don’t make the link that valuations can remain low for 20 years making market timing based on valuations a fool’s errand as has been shown in virtually every analysis on the subject. If I was trying to discredit you, I wouldn’t agree with the original premise in this thread lol.
Topic Author
CraigTester
Posts: 1488
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Re: 20 Years for SP500 to Recover

Post by CraigTester »

nigel_ht wrote: Tue Aug 16, 2022 11:39 pm
CraigTester wrote: Tue Aug 16, 2022 8:47 pm
As a for instance, you've been asked to help a friend with setting his AA for retirement.

He comes to you all excited....

He just read a NYT article saying the SP500 grows at 10% per year.... and even after the Great Depression, it recovered in only 4.5 years.....

He does some math in his head, smiles, and asks if you think he's being too conservative to put 4.5 years cash in a safe mm account and throw the rest in stocks....
This is not what is recommended on the BH wiki regarding investment philosophy, asset allocation and risk assessement.

https://www.bogleheads.org/wiki/Boglehe ... philosophy
https://www.bogleheads.org/wiki/Asset_allocation

Assuming he has 25x...it's 20.5X equities and 4.5X fixed income or 80/20 (okay 82/18) which some folks will do in retirement.

Is it conservative for a 30 year retirement with 25x? No.

If he has 50x...yah, he's fine. At a 2% WR it doesn't really matter if he's 90/10. It's automatically "conservative" because he could have retired a while ago and he has a 2x what you needed for the historical worst case. That's a lot of margin for error.

There's no "gotcha" here because conservative and aggressive is relative.
The next day your 22 year old niece says she's very risk averse..., but as a new nurse..., keeps reading on CNBC that she should invest most of her paycheck in the stock market....

She explains that she understands that stocks can be risky.... And hopes we don't get another March 2020 situation where you have to wait for several months for the government to fix the stock market again....
Nothing wrong with investing most of her paycheck in the stock market.

You then point her at the above wiki pages regarding passive index investing, LBYM, risk tolerance, etc. At some point someone will explain that 2020 was amazingly fast and 2008 sucked a lot more. Given this is a common refrain in the forum, it shouldn't take too long for her to encounter that.

When she builds her IPS she can take into account how risk adverse she feels she is.

Again, no "gotcha" here either. Someone early career isn't incurring a lot of risk being 100/0 with an EF because their time horizon is long. She can choose some other AA but her circumstances is inherently low risk because her human capital is high. Her future earnings provides a tremendous amount of risk mitigation.
You then log on to Bogleheads and see multiple posters in heated exchanges about all sorts of esoteric things....

Tempers flare, and as one really strives to win the argument, he slips in these little sentences, explaining that even if the stock market goes down, it never lasts for more than a few years....

He goes on to proclaim that your just about guaranteed to make 10% per year if you just stay the course.... Nobody knows nuttin so just do what all these other people are doing and don't ask too many questions....

You try to interject a comment explaining that it can take 20 years to recover,

But he just says meh, you're not including dividends, you made a math error, etc....

Your wife calls you for dinner and you never get to correct the false statements....

So you decide to write a post explaining that markets really can take 20 years to recover, etc, etc....
Link required.
But people don't like what you're saying so they try to find holes in your data by showing you a long term Nominal stock chart.....and say, "see, it always goes up, your data is wrong...." Or claim you didn't include dividends....
Perhaps people simply disagree with your opinion that Bogleheads is somehow a source of misinformation...I think you seriously mischaracterize the general opinion of the forum.

If anything BH tends to be very conservative and the mantra is be ready for a 50% (or more) drop anytime and that it could last a while. That you only know your true risk tolerance when you have a large portfolio in a 2008 scenario. That 2020 was too quick of a crash to test your real tolerance.

So all that stuff above is straw man.
Others attempt to discredit you for being a "market timer" and then post public service announcements to make sure others aren't persuaded by your gibberish....

And finally, someone takes the bull by the horn and states that none of this historical data stuff is "actionable"....

All the Best,

Craig Tester
Maybe because if you follow the BH philosophy it really ISN'T actionable because the mantra is to "Don't do something, Just stand there!"

If you have an IPS and done a reasonable job assessing your risk tolerance and picked an AA based on your risk assessment then the fact that the market can crash hard and stay crashed a long time has already been factored into your thinking. The 1929 scenarios will already be factored in. It's factored into SWR. It's factored into VPW. It's factored into ABW. It's factored into the basic BH philosophy that time in market tends to fix many ills. It's factored into the need to ramp from your accumulation AA to your retirement AA. It's factored into the need to consider SORR.

Everything is already based on historical data stuff with a leavening of investment/economic theory which is itself based on historical data stuff.

Even if you don't understand that stocks can crash and stay down for 20 years the basic tenets/rules of thumb/best practices/etc have factored that possibility in there.

And as far as I can tell, nobody has called you a market timer.
The reason it IS actionable is because every plan begins with understanding what's possible.

And there is a very high level of misunderstanding on this front.....

Even on this very thread there is confusion about Nominal versus Real, references to a misleading NYT article "authoritatively" saying it was a 4.5 year recovery for the depression, recency bias, etc, etc....

And I'm sure that if you've spent much time on this overall forum, you've seen some wild distortions of the market's historical record....

So again, the purpose of this thread is not to solve the riddle of how to set an AA to navigate the Great Depression....But rather it is to acknowledge what actually happened during 48 (20+20+15+13) out of the last 121 years of market history....

Then..., once we all are staring at the same facts, we can have unending debates about how best to prepare.....

All the best,

Craig Tester
Marseille07
Posts: 16054
Joined: Fri Nov 06, 2020 12:41 pm

Re: 20 Years for SP500 to Recover

Post by Marseille07 »

CraigTester wrote: Wed Aug 17, 2022 8:03 am Then..., once we all are staring at the same facts, we can have unending debates about how best to prepare.....
I think this is where people disagree. The BH philosophy does not prepare for crashes, you just set some AA and hold tight (another way to look at it is that you're always prepared). There are pros and cons of doing this, however.
nigel_ht
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Re: 20 Years for SP500 to Recover

Post by nigel_ht »

CraigTester wrote: Wed Aug 17, 2022 8:03 am
The reason it IS actionable is because every plan begins with understanding what's possible.
I don't think anyone has really disagreed that the market can drop and stay down for a very long time or that there aren't lost decades.

But it's not actionable in terms of what to do in the context of "Stay the Course" responses which you rail against in your first post.
And there is a very high level of misunderstanding on this front.....
Not really. Maybe some individual posters but not the general consensus as documented in the wiki.
Even on this very thread there is confusion about Nominal versus Real, references to a misleading NYT article "authoritatively" saying it was a 4.5 year recovery for the depression, recency bias, etc, etc....
I think folks understand the difference between nominal vs real.

And the NYT article is correct in the context in which it was written. That succeeding bear markets hammered investors right after recovery doesn't mean that the market didn't recover...this is no different than the really short Covid bear in 2020. Was the 1933 Bull the shortest in history? Yes. 2 months. Was the 2020 Bear the shortest in history? Yes, 33 days.

Is it misleading to say that our 11 year bull market ended in 2020? Nope. It surely did end. But did the bull really end?

Using your general approach you can make the case that if you ignore the covid crash, covid bubble and bubble pop we're about where we should be if covid never happened.
And I'm sure that if you've spent much time on this overall forum, you've seen some wild distortions of the market's historical record....

So again, the purpose of this thread is not to solve the riddle of how to set an AA to navigate the Great Depression....But rather it is to acknowledge what actually happened during 48 (20+20+15+13) out of the last 121 years of market history....

Then..., once we all are staring at the same facts, we can have unending debates about how best to prepare.....
Facts can be interpreted in different ways. Saying that the market recovered in 4.5 years is based on the same facts as the market didn't recover for 20 years.
MarkRoulo
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Re: 20 Years for SP500 to Recover

Post by MarkRoulo »

nigel_ht wrote: Wed Aug 17, 2022 9:47 am ... snip ...

Facts can be interpreted in different ways. Saying that the market recovered in 4.5 years is based on the same facts as the market didn't recover for 20 years.
This isn't quite a different interpretation.

This is using the word "recovered" in two separate ways.

A lot of discussions get much shorter (and clearer) if the folks involved can agree on what various words *mean* (e.g. "net worth", "cash", "bond", "market timing").
Robot Monster
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Re: 20 Years for SP500 to Recover

Post by Robot Monster »

If you want to see how the S&P recovered (whatever interpretation you want) from 1929, I think this New York Times graphic makes it clear. NYT link
nigel_ht
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Re: 20 Years for SP500 to Recover

Post by nigel_ht »

Robot Monster wrote: Wed Aug 17, 2022 10:06 am If you want to see how the S&P recovered (whatever interpretation you want) from 1929, I think this New York Times graphic makes it clear. NYT link
Link does odd things in my browser...
Marseille07
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Re: 20 Years for SP500 to Recover

Post by Marseille07 »

nigel_ht wrote: Wed Aug 17, 2022 9:47 am But it's not actionable in terms of what to do in the context of "Stay the Course" responses which you rail against in your first post.
By definition, "Stay the Course" is not actionable. The OP wanted to start conversations on what to do (in terms of setting your AA more conservatively or doing some in-n-out of the market) with knowledge that lengthy drawdowns can and do happen.

Your response may well be "I already know, I change nothing" and that's perfectly valid.
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Re: 20 Years for SP500 to Recover

Post by Robot Monster »

nigel_ht wrote: Wed Aug 17, 2022 10:16 am
Robot Monster wrote: Wed Aug 17, 2022 10:06 am If you want to see how the S&P recovered (whatever interpretation you want) from 1929, I think this New York Times graphic makes it clear. NYT link
Link does odd things in my browser...
That's just because of all the viruses and malware being installed. Kidding!! Um...I dunno...the pages comes up fine on my tablet.
alluringreality
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Re: 20 Years for SP500 to Recover

Post by alluringreality »

Robot Monster wrote: Wed Aug 17, 2022 10:06 am If you want to see how the S&P recovered (whatever interpretation you want) from 1929, I think this New York Times graphic makes it clear. NYT link
Interesting, I hadn't seen that one, thanks. It looks like updated versions are available.
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Re: 20 Years for SP500 to Recover

Post by alfaspider »

Marseille07 wrote: Wed Aug 17, 2022 9:41 am
CraigTester wrote: Wed Aug 17, 2022 8:03 am Then..., once we all are staring at the same facts, we can have unending debates about how best to prepare.....
I think this is where people disagree. The BH philosophy does not prepare for crashes, you just set some AA and hold tight (another way to look at it is that you're always prepared). There are pros and cons of doing this, however.
I think a lot of people want to believe there is some special strategy that can both grow their portfolio at or above market rates AND protect against any conceivable downturn. The reality is that you will never have perfect certainty in your investments. The best protection against a big downturn and long recovery is to save more than you need, so you can retire comfortably even with a much smaller than expected retirement account.
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Re: 20 Years for SP500 to Recover

Post by Marseille07 »

alfaspider wrote: Wed Aug 17, 2022 10:35 am I think a lot of people want to believe there is some special strategy that can both grow their portfolio at or above market rates AND protect against any conceivable downturn.
Protecting against any downturn is impossible. I don't think anyone said that. We can get out early but you lock in the damage at that point.
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CraigTester
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Re: 20 Years for SP500 to Recover

Post by CraigTester »

Just noticed a new thread launched called, "16 Year Bear Market '66-'82"

One of the early comments compares that period to the 20 year wait required after the Great Depression....

And nobody debated the comment with a Nominal stock chart, or You-didn't-include-dividends-comment..., or NYT said 4.5 years, etc, etc....

Maybe our discussion has spilled out to the broader forum....

Perhaps our work here is done...!
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Re: 20 Years for SP500 to Recover

Post by marcopolo »

CraigTester wrote: Wed Aug 17, 2022 1:24 pm Just noticed a new thread launched called, "16 Year Bear Market '66-'82"

One of the early comments compares that period to the 20 year wait required after the Great Depression....

And nobody debated the comment with a Nominal stock chart, or You-didn't-include-dividends-comment..., or NYT said 4.5 years, etc, etc....

Maybe our discussion has spilled out to the broader forum....

Perhaps our work here is done...!
Or perhaps your premise that we are just a bunch of naive dolts who must not know this already since we don't agree with your course of action based on this knowledge, and if you could just educate us we would realize how brilliant you are, was faulty to begin with.
Once in a while you get shown the light, in the strangest of places if you look at it right.
sc9182
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Re: 20 Years for SP500 to Recover

Post by sc9182 »

marcopolo wrote: Wed Aug 17, 2022 2:14 pm
CraigTester wrote: Wed Aug 17, 2022 1:24 pm Just noticed a new thread launched called, "16 Year Bear Market '66-'82"

One of the early comments compares that period to the 20 year wait required after the Great Depression....

And nobody debated the comment with a Nominal stock chart, or You-didn't-include-dividends-comment..., or NYT said 4.5 years, etc, etc....

Maybe our discussion has spilled out to the broader forum....

Perhaps our work here is done...!
Or perhaps your premise that we are just a bunch of naive dolts who must not know this already since we don't agree with your course of action based on this knowledge, and if you could just educate us we would realize how brilliant you are, was faulty to begin with.
just saying - OPs fud got debunked partially here — and in the other thread that OP premise getting trashed still. Hopefully that won’t spill over to here :-)
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Re: 20 Years for SP500 to Recover

Post by unemployed_pysicist »

McQ wrote: Tue Aug 16, 2022 4:16 pm
unemployed_pysicist wrote: Tue Aug 16, 2022 12:01 pm
burritoLover wrote: Tue Aug 16, 2022 10:07 am I’d be curious what the real bond returns were across different durations / credit during these long recovery periods for stocks.
Here is the companion calculator for the ten year treasury total return:

https://dqydj.com/treasury-return-calculator/

It uses Shiller's dataset as well.
Here are the annualized real returns over the periods from the original post:

May 1901-Aug 1921: -0.367%
Aug 1929–May 1949: 1.11%
Nov 1968-Mar 1983: 0.948%
Mar 2000- Jan 2013: 2.173%

I think the Shiller ten year returns assume flat term structure and no bid ask spread. I suspect the actual, real return of a ten year note rolled monthly was probably lower than the numbers shown above.

For other durations or credit ratings, maybe the Simba backtest spreadsheet could be used, at least for yearly returns.
Cautionary note and warning: Shiller’s 10-year Treasury returns are not based on observed bond prices for that maturity before about 1970.

That’s because 10-year Treasuries were not regularly issued before the 1970s. There are scattered instances from 1917 to 1970, but there are numerous lengthy gaps where no Treasury had exactly ten years to maturity, and there wasn’t another such to roll into the next year.

Between 1865 and 1917 none of the few Treasuries in existence are used in historical accounts (see Homer and Sylla, History of Interest Rates, for an explanation).

Shiller’s series is assembled from a mix of other non-Treasury bonds and yield curve interpolation. If you want the details, here is a dialogue with SimpleGift (Shiller’s 1-year Treasury series also is not that). viewtopic.php?p=6131409#p6131409

Shiller’s series are perfectly adequate for academic use, but they are misleadingly labelled if you haven’t spent years studying bond market history.
I can supply real bond returns on an annual basis back to 1793, but they won’t always be Treasuries and they will almost always be long bonds. Because intermediate maturities are also a creature of recent decades.

Last, Shiller’s stock series is fine. I spent six months beating on the 1871-1897 portion, adding back what Cowles had left out and rebuilding the dividend record from scratch. Barely budged the annual return. My criticisms in this post are limited to his "Treasury" series.
Thank you for your post. I suspected there were shortcomings in Shiller's 10 year bond series, but I did not know all the details. In general, I do not use it in any "backtesting" simulations, but sometimes I use it to look at periods where CMT yields from FRED or the zero-coupon curve of Gurkaynak Sack Wright is not available (I do not have access to the CRSP database.)

Do you have annual treasury total return series comparable to 10 years maturity for the May 1901-Aug 1921 and Aug 1929–May 1949 time periods?
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CraigTester
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Re: 20 Years for SP500 to Recover

Post by CraigTester »

sc9182 wrote: Wed Aug 17, 2022 2:18 pm
marcopolo wrote: Wed Aug 17, 2022 2:14 pm
CraigTester wrote: Wed Aug 17, 2022 1:24 pm Just noticed a new thread launched called, "16 Year Bear Market '66-'82"

One of the early comments compares that period to the 20 year wait required after the Great Depression....

And nobody debated the comment with a Nominal stock chart, or You-didn't-include-dividends-comment..., or NYT said 4.5 years, etc, etc....

Maybe our discussion has spilled out to the broader forum....

Perhaps our work here is done...!
Or perhaps your premise that we are just a bunch of naive dolts who must not know this already since we don't agree with your course of action based on this knowledge, and if you could just educate us we would realize how brilliant you are, was faulty to begin with.
just saying - OPs fud got debunked partially here — and in the other thread that OP premise getting trashed still. Hopefully that won’t spill over to here :-)
Well that's disappointing if they just repeat the same misunderstandings discussed here.....

Would be nice to have the next thread stand on the shoulders of those before it.....

but I suppose it does create fear, uncertainty and doubt to fully absorb the reality of our historical market record.... and therefore people try pretty hard to "reinterpret" it...
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Re: 20 Years for SP500 to Recover

Post by squirrel1963 »

CraigTester wrote: Wed Aug 17, 2022 5:41 pm
sc9182 wrote: Wed Aug 17, 2022 2:18 pm
marcopolo wrote: Wed Aug 17, 2022 2:14 pm
CraigTester wrote: Wed Aug 17, 2022 1:24 pm Just noticed a new thread launched called, "16 Year Bear Market '66-'82"

One of the early comments compares that period to the 20 year wait required after the Great Depression....

And nobody debated the comment with a Nominal stock chart, or You-didn't-include-dividends-comment..., or NYT said 4.5 years, etc, etc....

Maybe our discussion has spilled out to the broader forum....

Perhaps our work here is done...!
Or perhaps your premise that we are just a bunch of naive dolts who must not know this already since we don't agree with your course of action based on this knowledge, and if you could just educate us we would realize how brilliant you are, was faulty to begin with.
just saying - OPs fud got debunked partially here — and in the other thread that OP premise getting trashed still. Hopefully that won’t spill over to here :-)
Well that's disappointing if they just repeat the same misunderstandings discussed here.....

Would be nice to have the next thread stand on the shoulders of those before it.....

but I suppose it does create fear, uncertainty and doubt to fully absorb the reality of our historical market record.... and therefore people try pretty hard to "reinterpret" it...
There should be no reason to have fear, or at least no more fear than what is rationally justified. We know that

"invest you must"

Because the alternative of keeping cash in a money market is even riskier in the long term. So invest by taking only the risk that must absolutely be taken (whole market risk) and have a proper stock/bond allocation. There is no magic here, no silver bullets, just good enough bullets.
LMP | Liability Matching Portfolio | safe portfolio: TIPS ladder + I-bonds + Treasuries | risky portfolio: US stocks / US REIT / International stocks
McQ
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Re: 20 Years for SP500 to Recover

Post by McQ »

unemployed_pysicist wrote: Wed Aug 17, 2022 3:09 pm ...
Thank you for your post. I suspected there were shortcomings in Shiller's 10 year bond series, but I did not know all the details. In general, I do not use it in any "backtesting" simulations, but sometimes I use it to look at periods where CMT yields from FRED or the zero-coupon curve of Gurkaynak Sack Wright is not available (I do not have access to the CRSP database.)

Do you have annual treasury total return series comparable to 10 years maturity for the May 1901-Aug 1921 and Aug 1929–May 1949 time periods?
Alas, no.
1. The SBBI has 20-year Treasury returns monthly for the 1929 to 1949 span (sort of--maturity between 30 and 14 years, depending). Hathitrust.org has the 1989 SBBI edition free. The SBBI compilers could not assemble a 10-year Treasury series back to 1926 ... you have to let that go. Bond market history is not commensurable. The 10-year issue is a modern phenomenon, not timeless. Not sure when academics began to fixate on the 10-year maturity as the index of bond returns.

2. The 1925 Treasury 4s was about the only sizable issue in the 1901 1917 period, with maturity declining year by year, and yield distorted by circulation privileges.

Long corporate bonds dominated the fixed income space until WW II: here are real returns for trailing 20, 30 and 50 year rolls, January to January, FWIW. [Aggregate bond index before 1897, Treasuries only before 1826].

Image
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Mother Biggles
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Re: 20 Years for SP500 to Recover

Post by Mother Biggles »

CraigTester wrote: Tue Aug 09, 2022 1:55 pm I continue to see numerous misleading/misinformed claims throughout this forum, like:

"The SP500 recovered in several years after the great depression", or the "SP500 has always recovered in just a few years, stay the course, etc…"

And while these claims can sometimes be tortured to be sort of true (for an interim moment), they can be extremely misleading or sometimes just plain wrong.

And most importantly, they can perhaps lead some unsuspecting Bogleheads to sign up for more risk than they had intended/understood with their AA, etc...


So…, Rather than derail other threads when these types of claims are made, I thought it would be helpful to everyone to have the facts nailed down.

To that end, below are example periods of time when the SP500 required more than a decade to “permanently” exceed a previous high water mark.

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

Note that dividends are reinvested and returns are inflation adjusted. (Source: Shiller online data)

So I invite all the number crunchers out there to vet this data, argue about rounding error, cherry picking, etc....

But once we all agree on the math, perhaps we can add some version of this to the basic body of knowledge that all Bogleheads understand as they make their AA decisions, rebalancing schedules, lump sum decisions, etc.

All the best,

Craig Tester
I have been off of this website for a while so I don’t remember if I read this before or responded before. Someone corrected me about a misunderstanding I had. My understanding was that including dividends there was never a rolling 20 year history in the stock market or stocks were down over any 20 year period. I was in error. There was one 20 year period Where the stocks were down a few bases points over 20 years. Other than that the market has never been down for any rolling 20 year. Which is like 100 years or 200 rolling 20 year windows. So historically the risk has been essentially zero that you will lose money in the stock market as long as you have a 20 year window. If you have a 15 year period The odds are stacked very high in your favor. Under 15 years there is a chance you could be down substantially. So I think it is easy to be blasé as long as you accept that you are looking at a 20 or 15 year window. It could crash hard for five years or 10 years or even 15 years. But not 20 years. At least it has never happened before except for a few basis points. My thought is that although there is substantial volatility if your time window is long enough it all evens out. That is actually the foundation of my plan and I suspect for a lot of people. Money that I don’t need for 15 or 20 years is 100% equities. Money I will need in 5 to 10 years is in bonds or at least theoretically. I am still a little more aggressive than I would like to be. And money that I need within a few years is in cash equivalents. That entire decision making process however rests on the foundation that stocks will not be down over a 20 year period.
Last edited by Mother Biggles on Thu Aug 18, 2022 3:26 am, edited 1 time in total.
Mother Biggles
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Re: 20 Years for SP500 to Recover

Post by Mother Biggles »

squirrel1963 wrote: Wed Aug 17, 2022 6:53 pm
CraigTester wrote: Wed Aug 17, 2022 5:41 pm
sc9182 wrote: Wed Aug 17, 2022 2:18 pm
marcopolo wrote: Wed Aug 17, 2022 2:14 pm
CraigTester wrote: Wed Aug 17, 2022 1:24 pm Just noticed a new thread launched called, "16 Year Bear Market '66-'82"

One of the early comments compares that period to the 20 year wait required after the Great Depression....

And nobody debated the comment with a Nominal stock chart, or You-didn't-include-dividends-comment..., or NYT said 4.5 years, etc, etc....

Maybe our discussion has spilled out to the broader forum....

Perhaps our work here is done...!
Or perhaps your premise that we are just a bunch of naive dolts who must not know this already since we don't agree with your course of action based on this knowledge, and if you could just educate us we would realize how brilliant you are, was faulty to begin with.
just saying - OPs fud got debunked partially here — and in the other thread that OP premise getting trashed still. Hopefully that won’t spill over to here :-)
Well that's disappointing if they just repeat the same misunderstandings discussed here.....

Would be nice to have the next thread stand on the shoulders of those before it.....

but I suppose it does create fear, uncertainty and doubt to fully absorb the reality of our historical market record.... and therefore people try pretty hard to "reinterpret" it...
There should be no reason to have fear, or at least no more fear than what is rationally justified. We know that

"invest you must"

Because the alternative of keeping cash in a money market is even riskier in the long term. So invest by taking only the risk that must absolutely be taken (whole market risk) and have a proper stock/bond allocation. There is no magic here, no silver bullets, just good enough bullets.
Invest you must indeed. Holding money in cash equivalents is guaranteed you will lose the game and not have money to retire if you were counting on that in 10 years or 20 years obviously as we all know because of inflation. So however risky equities might be cash outside of a few years of expenses is riskier. The dollars will still be there but inflation means you are guaranteed to lose. Long-term I mean.
Mother Biggles
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Re: 20 Years for SP500 to Recover

Post by Mother Biggles »

CraigTester wrote: Wed Aug 17, 2022 1:24 pm Just noticed a new thread launched called, "16 Year Bear Market '66-'82"

One of the early comments compares that period to the 20 year wait required after the Great Depression....

And nobody debated the comment with a Nominal stock chart, or You-didn't-include-dividends-comment..., or NYT said 4.5 years, etc, etc....

Maybe our discussion has spilled out to the broader forum....

Perhaps our work here is done...!
Well a lot of people make the error not to include dividends. Including dividends I think you and I mentioned this before. I posted it in the something like 200 rolling 20 year.‘s that we have had a stock market in this country there has never been a single period in 200 chances Were the market was down over 20 years. You found a period if I recall correctly that over 20 years the market was down a few basis points so I had to edit my opinion but down a few basis points over 20 years really I think it’s not a meaningful risk or some thing that people would consider a meaningful risk. So again if you are planning on holding your equities for 20 years so far there has been a zero out of something like 200 periods of 20 years that the market was down meaningfully (Ie more than a few basis points). In contrast had you held cash for 20 years I suspect there are an awful lot of periods aware you would have had meaningful losses because of inflation. Equities are for long periods of time. Over long periods of time they are quite safe. Over short periods of time they are whiskey. Which is the reason we have cash equivalents. Cash equivalents are very safe short term but very risky long-term. Also I did not look up to see how many rolling 20 year. We have in the stock market but it is probably something around 200. That would be an easy google search.
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