Total stock market fund and the lost decade

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
Topic Author
Jobseeker2013
Posts: 81
Joined: Wed May 11, 2022 5:47 pm

Total stock market fund and the lost decade

Post by Jobseeker2013 »

https://www.google.com/amp/s/www.prairi ... s_amp=true

So looks like if you had a 3 fund portfolio 2000-2009 the US stock componet would have suffered since it did not tilt value and small cap. I know my target date funds in my 401K are essentially a 3 fund total US, international stock and bond index. No tilt. What do others think? Is the Total Stock Market sufficient?
Normchad
Posts: 5648
Joined: Thu Mar 03, 2011 6:20 am

Re: Total stock market fund and the lost decade

Post by Normchad »

2000-2009 was absolutely awesome for me. I’m in the catbird seat thanks to that.

I was 30 in 2000. Entering the prime of my earnings years, and that was 9 fabulous years of buying eggs while they were on sale.

I’m sure I’d feel differently if I had retired in 1999. But as a youngish accumulator, it was great.

I was 95% total US stock that entire time.
User avatar
retired@50
Posts: 12821
Joined: Tue Oct 01, 2019 2:36 pm
Location: Living in the U.S.A.

Re: Total stock market fund and the lost decade

Post by retired@50 »

Jobseeker2013 wrote: Mon May 16, 2022 10:50 pm https://www.google.com/amp/s/www.prairi ... s_amp=true

So looks like if you had a 3 fund portfolio 2000-2009 the US stock componet would have suffered since it did not tilt value and small cap. I know my target date funds in my 401K are essentially a 3 fund total US, international stock and bond index. No tilt. What do others think? Is the Total Stock Market sufficient?
I do think a target date fund with no tilt is sufficient.

Keep in mind that you've mentioned a single decade that contained two big stock market crashes. Most retirement savers will save for around 30 years of working, and will still be invested in the stock market to some degree for another 30 years of retirement. So, don't fret. There haven't been any 6-decade stretches where the stock market wasn't a good way to invest.

Regards,
If liberty means anything at all it means the right to tell people what they do not want to hear. -George Orwell
jfave33
Posts: 3287
Joined: Thu Mar 19, 2015 6:18 pm

Re: Total stock market fund and the lost decade

Post by jfave33 »

That assumes no new contributions for one and it is a short time period cherry picked to end at a recession.

If you had $250k in 2009. You'd have $1m just 12 years later.
User avatar
markjk
Posts: 540
Joined: Wed Oct 07, 2020 6:01 am

Re: Total stock market fund and the lost decade

Post by markjk »

Yes, it's sufficient historically speaking.

None of this is a single point in time for anyone. Even if you happened to retire in 1999, you probably continued with a a portfolio containing stocks for for many years after (and hopefully still are). You possibly took a hit in 2000 - 2010 with sequence of returns/withdrawals but even that really depends on your withdrawal rate, withdrawal frequency, etc. That decade for as bad as it was still ended in the green if you were diversified appropriately and continued reinvesting dividends. If your withdrawal rate was small enough during that time frame you were likely fine and you then picked up on the gains for the following 12 years.

We have to keep in mind this is a continuum which assumes you are accumulating for x number of years and then withdrawing for y number of years. It's a long timeframe with many variables. Pulling out a specific timeframe and talking about only stock market returns during the time frame is what we all do because it's easy and leads to conversations. But the truth is it's only one input of many inputs. You have to take it all into consideration to really understand the various impacts to your overall retirement strategy.
User avatar
HMSVictory
Posts: 1715
Joined: Sun Nov 01, 2020 6:02 am
Location: Lower Gun Deck

Re: Total stock market fund and the lost decade

Post by HMSVictory »

Yes its sufficient and as the above poster noted it was glorious to buy into. I knew it was going to be huge once I started seeing stories like "the lost decade" when you see stuff like that its solid gold moving forward.

Like Uncle Warren says when its raining gold don't reach for a thimble reach for a bucket! 07-09 was a fire sale on stocks and houses!

I have a slight value tilt with Wellington fund and it has not improved my returns but has been a drag on returns due to growths outperformance.

My preference now is not to tilt because it saves you from thinking "is my tilt working or not" and just makes life less complicated. I do agree that small caps stocks have taken a beating though so far this year.
Stay the course!
wolf359
Posts: 3207
Joined: Sun Mar 15, 2015 8:47 am

Re: Total stock market fund and the lost decade

Post by wolf359 »

Normchad wrote: Mon May 16, 2022 10:52 pm 2000-2009 was absolutely awesome for me. I’m in the catbird seat thanks to that.

I was 30 in 2000. Entering the prime of my earnings years, and that was 9 fabulous years of buying eggs while they were on sale.

I’m sure I’d feel differently if I had retired in 1999. But as a youngish accumulator, it was great.

I was 95% total US stock that entire time.
+1
The thing about "lost decades" is that they're defined by looking at the values of the stock market at the beginning and at the end of the period.

Most people don't invest that way. A more typical way of investing is to invest with each paycheck, so that you're dollar cost averaging into the market throughout the entire period. If that is your pattern, and if you held a job throughout the entire period, then the lost decade is actually very good for investing.

Note that the underlined part is a very big IF. You need an emergency fund in case of job loss. You need bonds in case you exhaust that emergency fund and you need to use your portfolio for living expenses. You need to be prepared for things to go wrong.

But if you can invest throughout, lost decades are an opportunity for those still in accumulation mode.
User avatar
ruralavalon
Posts: 26351
Joined: Sat Feb 02, 2008 9:29 am
Location: Illinois

Re: Total stock market fund and the lost decade

Post by ruralavalon »

Jobseeker2013 wrote: Mon May 16, 2022 10:50 pm https://www.google.com/amp/s/www.prairi ... s_amp=true

So looks like if you had a 3 fund portfolio 2000-2009 the US stock componet would have suffered since it did not tilt value and small cap. I know my target date funds in my 401K are essentially a 3 fund total US, international stock and bond index. No tilt. What do others think? Is the Total Stock Market sufficient?
I think that a total stock market index fund is more than sufficient for investing in U.S. stocks, without any small-cap value tilt.

A decade is an artificial time period to use. Move the start or end point slightly and you can get very different results.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link: Bogleheads® investment philosophy
User avatar
Taylor Larimore
Posts: 32842
Joined: Tue Feb 27, 2007 7:09 pm
Location: Miami FL

Re: Total stock market fund and the lost decade

Post by Taylor Larimore »

Jobseeker2013 wrote::
So looks like if you had a 3 fund portfolio 2000-2009 the US stock componet would have suffered since it did not tilt value and small cap. I know my target date funds in my 401K are essentially a 3 fund total US, international stock and bond index. No tilt. What do others think? Is the Total Stock Market sufficient?
Jobseeker2013:

I agree with what experts say:

viewtopic.php?f=10&t=156579

Best wishes.
Taylor
Jack Bogle's Words of Wisdom: "Total market indexing is the gold standard. Anything else, like sector investing, is a dilution of that standard."
"Simplicity is the master key to financial success." -- Jack Bogle
Topic Author
Jobseeker2013
Posts: 81
Joined: Wed May 11, 2022 5:47 pm

Re: Total stock market fund and the lost decade

Post by Jobseeker2013 »

Thank you everyone for the great replies!
Apathizer
Posts: 2507
Joined: Sun Sep 26, 2021 2:56 pm

Re: Total stock market fund and the lost decade

Post by Apathizer »

Jobseeker2013 wrote: Mon May 16, 2022 10:50 pm https://www.google.com/amp/s/www.prairi ... s_amp=true

So looks like if you had a 3 fund portfolio 2000-2009 the US stock componet would have suffered since it did not tilt value and small cap. I know my target date funds in my 401K are essentially a 3 fund total US, international stock and bond index. No tilt. What do others think? Is the Total Stock Market sufficient?
While that period was uncharacteristically awful it can happen. It's more of a risk with a predominantly equities allocation. That's why they recommend holding bonds and cash for money you'll need in less than 5 years.

I don't have time to check right now but I think diversified bonds returned about 5 or 6% during that period. So if you had say roughly a 50/50 equities Bond portfolio you would have been just fine.

But but if the equity portion had moderate Factor slants you'd have been even better off. That's why I am an advocate of factors though it's not absolutely essential. Research shows that factors are potential independent sources of return from the total market.

So a well-diversified equity and Bond portfolio with equity Factor slants is about as safe as it gets. That's currently what I have in my taxable account. If I weren't planning to sell my house in about a year I'd have a little bit higher allocation to bonds.
ROTH: 50% AVGE, 10% DFAX, 40% BNDW. Taxable: 50% BNDW, 40% AVGE, 10% DFAX.
Post Reply