Wednesday, October 7, 2009

I'm Too Old for Stocks

Are you too old for stocks?

The bear market caught a lot of retirement investors too exposed to stocks, but shying away now could mean missing a rally.

The Nasdaq is up a whopping 66% from the bottom set in March. We're now told we might miss a rally if we don't invest now? Hahaha!

How you should proceed depends on your age.

At 45, the only way I'd put money back to work in the stock market at these prices is if sharks with frickin' laser beams were pointed at my head.



Our research has shown with stocks, including in 2008, that there has never been a 15-year period where average stock returns were negative. So we still think stocks are an important part of the portfolio.

My research has shown with United States trade, including in 2009, that there has never been a 15-year period where this or this has happened.

My research has shown with United States budget deficits, including in 2009, that there has never been a 15-year period where this or this has happened.

My research has shown with United States oil production, including in 2009, that there has never been a 40-year period where this has happened.

Stuff happens.

So I still think owning
this is an important part of my portfolio.

13 comments:

getyourselfconnected said...

Mark,
good stuff.

I always wanted to write a post that debunked the whole "remember dividends" myth. We are told that when you include dividends, your return is even greater. While that may be true in an aggregate sense (say a mutual fund, one that actually holds stocks that actually pay a dividend) it is one thing for a 300 million dollar fund to make money on dividends, while a regular joe with his 30k invested makes very little. All those .10 cent payouts quarterly really do not mean a thing to a small holding.

Stagflationary Mark said...

mab,

I always wanted to write a post that debunked the whole "remember dividends" myth.

I read recently that the expenses on the average mutual fund are roughly 1.5%. That should pretty much eat up a good chunk of any long-term sustainable bonus profits for the small investor.

Further, the small investor can't get enough day trading apparently, which is an extra set of nickle and diming expenses. Pure gambling is never cheap. Even if the game is 100% fair and honest, the house still needs its cut.

mab said...

Stag, GYSC,

I always wanted to write a post that debunked the whole "remember dividends" myth.

I get your point, but I see it a bit differently. Dividends are not a myth. It's just that dividend yields are so low today that they appear to be a myth.

The current 2.1% dividend yield on the S&P 500 puts the market's valuation in perspective. Historically, S&P 500 dividends have been well above 3%, and occasionally as high as 6% or 7%. Outside of the dot.CON & housing bubbles, dividend yields have NEVER been this low! Not even during 1929!

And frothy stock valuations have to be CONsidered in the CONtext of our high debt levels too. Do you think there is a CONnection between our historically high debt levels and our historically high asset valuation levels? Do you think that CONnection is durable?

Absent Bernanke's "free" credit shenanigans, I'm quite certain the S&P 500 would be trading below 500 and sporting dividend yields > 4%.

Presently, people are making money buying risky assets for all the wrong reasons. I sometimes feel left out, the same as I felt during the dot.CON & housing manias. But, so be it. I just can't bring myself to invest if the fundamentals aren't there.

Here's a meta question. Can Bernanke re-flate the credit bubble eCONomy without any negative CONsequences?

getyourselfconnected said...

Mark,
In the immortal words of Indiana Jones:
"It ain't the years, it's the mileage!".

Investin gover the long term is great, as long as your exit point coincides with an upward run in the market. If not, well, too bad.

A strange economy we have, everything is geared to seperate you from almost all of your money, but then you also need to be saving all the way as well. Figure that one out!

Stagflationary Mark said...

mab,

"Can Bernanke re-flate the credit bubble eCONomy without any negative CONsequences?"

Does the Pope...

http://www.youtube.com/watch?v=k4osks2WIJs

Stagflationary Mark said...

GYSC,

Indiana: Here, take this. [hands Marion a torch] Wave it at anything that slithers.
Marion: The whole place is slitherin'!

getyourselfconnected said...

"Snakes. Why did it have to be snakes?"

"Asps. Very dangerous. You go first!"

Petra said...

Hi. I can also see your point but the important thing is that people don't mind living in debt taking more and more loans. There is a recession now, but we should ask what actually caused such a severe financial crisis. Maybe there's something to do with the loans..
Take care,
jay

Stagflationary Mark said...

Hi jay,

Thanks for your comments.

I started my Illusion of Prosperity blog in August of 2007 (before the recession and severe financial crisis) based on exactly what you just said.

"...the important thing is that people don't mind living in debt..."

People don't mind because debt seems like a free lunch. You get a big boost in instant gratification now but slow pain over the long haul. Eventually we reach the long haul stage though and taking on even more debt just isn't possible. Then the pain really sets in (subprime mortgage pain in particular). That's what I thought was going to happen when I turned bearish in 2004. That's what I think will continue to happen in the future.

I really don't believe that throwing more debt at a debt problem is going to help us at all over the long run. I point to the State of California's ongoing financial nightmare as near proof.

mab said...

Stag,

Too old for stocks? What, you don't want to participate in the ongoing "Quiet Depression"? Next you'll be telling us you don't want to participate in ANY of Wall Street's wealth transfer schemes.

CONsider:

From the market peak in 9/1929 until 9/1938 (nine years later), the S&P 500 had annualized real total returns (including dividends) of -2.95%.

From the market peak in 9/2000 through 8/2009 (nine years later), the S&P 500 had annualized real total returns (including dividends) of -4.82%!!!

In real terms, stocks in the first nine years of the Great Depression outperformed stocks over the past nine years by 18% (nine years @ 1.87%)!!! Of course Nasdaq investors fared much worse (winners of the new world, woohoo!).

I remarked on these numbers to some friends recently and they simply would not believe it. In terms of equity returns, the Great Depression has nothing on our ongoing nightmare.

There is some positive news though. Clearly, our financial propaganda skills have improved dramatically since the Great Depression. People don't even realize that they have been ripped off. Hence the term "quiet depression".

Exactly how many years after the 1929 bust was it before they started using the term "Great" Depression?

The greatest story never told.

Stagflationary Mark said...

mab,

I hear what you are saying. I'm certainly amazed that more people don't see it.

One thing we have now is a HUGE social safety net to catch many of the recently unemployed. That didn't exist during the Great Depression.

It is somewhat a "free lunch" though. You will note that we aren't actually paying much for the net. We're simply tacking it onto our bill. If we continue to do so and assuming that taking on debt at an exponential pace is not sustainable (that's what I certainly assume!), then eventually the net will fail.

Then what?

getyourselfconnected said...

Mark,
I hope you were not caught in an avalanche of toilet paper rolls falling off the shelves and thus unable to post! All my best.

Stagflationary Mark said...

GYSC,

I am caught in an "Elder Scrolls IV: Oblivion" avalanche. It is my latest PS3 gaming addiction, lol.

Have no fear. Oblivion is a fantasy game and any similarity to our long-term economy is purely coincidental.