http://www.businessweek.com/bwdaily...s_top+news+index+-+temp_dialogue+with+readers Unless one likes to lose 50% of their money over a 10 year period.... Mr. ¨Vanguard¨does not look so smart afterall....
Who looks at Buy and Hold over a 10-year period, unless you accept a good chance of losing money? Do a Monte Carlo analysis. If you get up to 20-25 years, then maybe you have to agree that buy and hold the SPY would come out ahead -- most of the time. My recommendation if you just want to buy and hold. You have to, at the start, commit to 20 years to be 100% SPY. If you have less time at the start, reduce your portfolio 's SPY exposure by 5% for every year less, 75 percent if you have 15 years, for instance. You may or may not beat the market, but you reduce the risk that you will lose money, possibly a substantial amount, in absolute terms. And if you are only interested in absolute, but bonds and cash for 20 years.
Of course this is old news....but for some time there were arguments favoring "passive" vs "active" management.... To the extent that companies such as Vanguard were created from this premise.... Vanguard's CEO even as recent as a few weeks ago was talking his book about how "active management" basically had no merit....when actually it is active management that allowed the CEO to make his argument.... ......................................................................................... Anyone knows that any business is a "traders" world.....as most businesses fail because of the change in prices, products, etc... .......................................................................................... Thus my argument is that a new worldwide stock exchange needs to be established that makes available to the trader wiki type information....and allowing for any language or currency....to be taken from the BATS model.... When everyone that has a computer connected to the internet knows that with a few mouse clicks at a cost of 20 cents per 100 shares ....one can own any security, any exchange, any currency, stock, bond, commodity, cd...etc....etc... One knows that one will never be stuck in their domestic currencies or economies with their hard earned capital.... When one combines this with wiki type boilerplate information provided for each security....then proper capital formation can be had that could truly be labeled as globalized.... .......................................................... To just say one can sit on their hands in a Vanguard world has been proven to be a losing concept.... One is rewarded by true effort....
The problem is what is the average American to do? A guy who is a professional such as a Doctor or Lawyer does not have the time nor the inclination to manage his own investments. If buy and hold doesn't work, what is the best way to invest?
Americans are impatient. But and hold mans buy and hold a broad-cased index, not a stock, for 20-plus years, not five or 10. Check the 20-to-25 year rolling returns. Out of the last 100 years, I think like 97 of them are positive and most largely so. If I were 45 or under right now, I a would absolutely have 100 % of an IRA in, say a SPY. If you are 45 and moved all your money there 12 months ago at the height of the market, you'll still come out on top but not until the end of the cycle. You just got hit by a worst case Monte Carlo situation, big losses in the front of a term.
This works great till it doesn't. Check out a Nikkei 225 chart for the past 20 years. If you are going to do buy n' pray you definitely need to be diversified in some fashion, not just "have 100% of an IRA in SPY." No doubt that many people, perhaps numbering in the millions, made out like bandits by putting all their savings in the market since 1978 or whatever, cashing out just in time in 1999 or 2007. There's no reason whatsoever that people retiring in 2015, 2020, or 2030 need be as lucky. I personally believe that you're much better off aiming for safe but steady yearly returns of 2-3% above inflation, saving 15-20% of your income every year. If you aren't a millionaire in your working life you won't be one in retirement, but you'll get by if you keep expenses low. Maybe spread 10-15% of your portfolio across a wide range of high R:R investments.
IMO tangible assets are the best. Real estate has been and will be a good one, but you need to buy with cash or an extremely high down payment (like 70%+), make sure to buy in a region of strong demand, and avoid buying at the tops of bubbles. I expect the winter of 2009-2010 will be a fantastic buying opp for savvy RE investors with cash to spare, who can stomach a period of flat or slightly negative growth in home values. There's always room for buying shares, but the risks are substantial - as are the potential rewards. If one is making any kind of investment it's usually a good idea to do your research and know what you're doing. The vast majority of people never bother to do this, and honestly shouldn't be investing in the market at all.
1. Nikkei is a worst case scenario, a 1 percent outlyer. 2. How many people put precisely 100 percent of the equity portion of heir net worth in 1988 or the year the market hit a high or even the five years up to the high. and held without adding over the years. Let, say, the Japanese superboom started in 1980, but 10k a year in, reinvest dividends quarterly. Run the numbers for 28 years, see what you get. I would be curious. I be you are close to flat, and that is a worse case very long term scenario.