Jump to content

Recommended Posts

Posted
3 hours ago, LCHorn said:

Kara Swisher brought this up on the same podcast with Scott Galloway--investing in the big tech firms, because so much of their revenue is generated internationally, is basically a way to keep money here but diversity into foreign markets. 

Scott Galloway and Kara Swisher agreeing on something is a pretty good warning sign to do the opposite.

I agree with the sentiment that US markets are stretched. I don't agree that internationals are the answer. The US outperformance hasnt been just a flash phenomenon -- its been true for any period of time this century you reference from, before/during/after any major economic events, Dotcom, GFC, Covid, etc.  

There is a good reason the US indices have outperformed Europe: nothing of their regulatory environment or tax regime or consumer capacity or even appetite suggest fertile grounds for economic growth. Can someone name offhand 5 European success stories?  Spotify... Adyen... and... LVMH? maybe some Pharmaceuticals? The US has 10x SAPs for every 1x of Germany's.

Earnings growth for all the Europe indices is half of that in the US (~5% vs 10%).  If you correct that for that in their ntm P/E, the ratios all fall back into line.

  • Like 1
Posted

im also using internal/europe interchangeably.  because most of the time we're referring to dax/ftse/stoxxx anyway and nobody cares about ibovespa or nifty50 or asx

Posted

The GLP makers seem to have something the US is going to buy a lot of…

 

we’ll see how it works out.  I don’t begrudge anyone staying heavy in US equity but right now I think it’s tremendously overvalued.  My US equity exposure is all in value mutual funds because I think they’re slightly less susceptible to the burst coming to the AI bubble.  

Posted
3 hours ago, Dbeasy said:

When you run monte carlo simulations of the potential market returns over various time periods, the fact that bonds often are not correlated with stocks helps reduce the odds of a retired investor running out of money. If a retiree takes out too much money for expenses for many years in a row while the value of stocks are highly depressed, they could run out. But what if you aren't retired or near retirement?

For those that are 30+ years from retirement, I typically wouldn't have any bonds, IF you are the type of person that can watch your portfolio drop by 60% and be fine with it. That was a great strategy for the last 20 years.  Right now, stock prices are at historical highs and bond rates are decent at 4-5%. So maybe having "some" bonds might make sense, but I wouldn't have much.

If you are under 30 years from retirement, small and growing positions in bonds is often recommended to deal with the withdrawal scenarios I described above.  For example, if someone plans to retire at 60 and are currently 55, having some bonds is a good idea because a massive market drop with a 10 year recovery period could lead to a person withdrawing at highly depressed stock prices.  For me personally, I never held substantial bond positions until I had already retired and rates shot up in 2022. At that point I built my retirement bond portfolio holdings. Why? Because bond rates for the 10 years prior to 2022 sucked. I did hold substantial cash for a variety of reasons.

I should have put my question more precisely. I understand the theory and practice involved. I was really asking what specific functions they are serving in his portfolio, and how well is that working out. 
The reason I ask is that I think the bolded above is a truism of the investment industry that is only sort of true, and depends a lot on the specifics of implementation. 

You said it yourself/ you didn’t invest until interest rates spiked in 2022, which is when correlation peaked. 

Im not bashing bonds. I’m questioning their value as a portfolio diversifier.

Posted
1 hour ago, Hefeweizen said:

My US equity exposure is all in value mutual funds because I think they’re slightly less susceptible to the burst coming to the AI bubble.  

Even if signals portend an AI bubble, I think its an indictment of the EU/RoW that they were never even involved in the first place (besides Mistral?).

Neither were they comparably significant in streaming, social media, robotics, cloud computing, fintech, or any other major trends. They get credit for perhaps clean energy, robotics, and fat pills. Not enough, IMO. 

Posted
42 minutes ago, Bozo_Casanova said:

I should have put my question more precisely. I understand the theory and practice involved. I was really asking what specific functions they are serving in his portfolio, and how well is that working out. 
The reason I ask is that I think the bolded above is a truism of the investment industry that is only sort of true, and depends a lot on the specifics of implementation. 

You said it yourself/ you didn’t invest until interest rates spiked in 2022, which is when correlation peaked. 

Im not bashing bonds. I’m questioning their value as a portfolio diversifier.

I think it always serves a purpose to have a L/S equity etf as well as a managed futures etf in a portfolio to further smooth the returns.  Yes, you're still going to have some overlap and unintended duplication, but it's served me well in the past.   In '22, when the bond market was down 20%, and so was the stock market, I had a managed futures fund as a 10% portfolio weighting.  It was up 45% that year.  My portfolios were down 4% for the year vs the market being down 20%.  Yeah, the next year when the market was up 30% and I was only up 18% kinda sucked, but that's the point of diversifying methodology, not just diversifying assets.  

  • Hook 'Em 3
Posted
34 minutes ago, Bozo_Casanova said:

I should have put my question more precisely. I understand the theory and practice involved. I was really asking what specific functions they are serving in his portfolio, and how well is that working out. 
The reason I ask is that I think the bolded above is a truism of the investment industry that is only sort of true, and depends a lot on the specifics of implementation. 

You said it yourself/ you didn’t invest until interest rates spiked in 2022, which is when correlation peaked. 

Im not bashing bonds. I’m questioning their value as a portfolio diversifier.

@Goredho didn't describe his investment and retirement horizon. If he's at or near retirement the value as a portfolio diviersifier is exactly as I just described, so I'm not quite sure what's not clear. If he's far from retirement, I do think there are some questions about that asset allocation. However, as I said above, the current stock market has a historically high valuation, with a future expected return over the next 10 years as low as 4-5% according to several financial services providers. Will it do better than that? Hopefully.  Bonds have a similar outlook for expected return. So going to 60/40 right now isn't a crazy idea for anyone. You could argue it might be a very good idea. Same returns, less risk. I wouldn't do it if I were in my 30's, but if it helps someone sleep at night, or more importantly not panic in a stock crash and sell all their stock, then moderating stock holdings can be a decent idea.

I agree with you that bonds are not a perfect hedge against stocks. I specifically used the term "often" and not "always" when describing the lack of correlation with stocks. As you said, for the last few years sometimes they've been moving in a more correlated way because of the economic environment.  However, over long time periods it's been shown historically that bonds can help improve portfolio performance. Are there other better ways? Sure. There are hundreds of portfolios you can find on the internet and from financial advisors all claiming superior performance to the 60/40 portfolio, with commodities, smal cap value stocks, TIPs, etc. Historically, the performance of these alternative portfoios is indisputable. It gets tricky when you talk about the future, though. Will all of these alternative portfolios still outperform? How much management is required? How much buying and selling of assets is required? What are the investment management fees? How complicated is the strategy. The beauty of 60/40 is that it's dead easy to manage, cheap, and tax efficient.

As a side note, we have a whole generation of investors that have grown up with the mindset that stocks always go up forever and any pain on the downside is relatively short-lived and manageable. We may continue to see that for the next 100 years. Or, we may not.

 

Posted
4 minutes ago, Trey3216 said:

I think it always serves a purpose to have a L/S equity etf as well as a managed futures etf in a portfolio to further smooth the returns.  Yes, you're still going to have some overlap and unintended duplication, but it's served me well in the past.   In '22, when the bond market was down 20%, and so was the stock market, I had a managed futures fund as a 10% portfolio weighting.  It was up 45% that year.  My portfolios were down 4% for the year vs the market being down 20%.  Yeah, the next year when the market was up 30% and I was only up 18% kinda sucked, but that's the point of diversifying methodology, not just diversifying assets.  

How do you think about carving out porfolio space for these two types of investments? For example, if someone has a 60/40, would you take from both groups, or one of the groups?

Posted (edited)
14 minutes ago, Dbeasy said:

How do you think about carving out porfolio space for these two types of investments? For example, if someone has a 60/40, would you take from both groups, or one of the groups?

I've always been more of a 55/35/10  guy (rather than 60/40, and clearly those numbers are arbitrary, just using them as a point of reference).   That 10 might be managed futures, it might be cash, it might be an individual strategy that's pulled back to a desirable level...etc.  

 

But for the sake of this argument, I'd say 50 equity/10 L/S equity/30 bond/10 managed futures  

Edited by Trey3216
  • Hook 'Em 1
Posted
Just now, Dbeasy said:

@Goredho didn't describe his investment and retirement horizon. If he's at or near retirement the value as a portfolio diviersifier is exactly as I just described, so I'm not quite sure what's not clear. If he's far from retirement, I do think there are some questions about that asset allocation. However, as I said above, the current stock market has a historically high valuation, with a future expected return over the next 10 years as low as 4-5% according to several financial services providers. Will it do better than that? Hopefully.  Bonds have a similar outlook for expected return. So going to 60/40 right now isn't a crazy idea for anyone. You could argue it might be a very good idea. Same returns, less risk. I wouldn't do it if I were in my 30's, but if it helps someone sleep at night, or more importantly not panic in a stock crash and sell all their stock, then moderating stock holdings can be a decent idea.

I agree with you that bonds are not a perfect hedge against stocks. I specifically used the term "often" and not "always" when describing the lack of correlation with stocks. As you said, for the last few years sometimes they've been moving in a more correlated way because of the economic environment.  However, over long time periods it's been shown historically that bonds can help improve portfolio performance. Are there other better ways? Sure. There are hundreds of portfolios you can find on the internet and from financial advisors all claiming superior performance to the 60/40 portfolio, with commodities, smal cap value stocks, TIPs, etc. Historically, the performance of these alternative portfoios is indisputable. It gets tricky when you talk about the future, though. Will all of these alternative portfolios still outperform? How much management is required? How much buying and selling of assets is required? What are the investment management fees? How complicated is the strategy. The beauty of 60/40 is that it's dead easy to manage, cheap, and tax efficient.

As a side note, we have a whole generation of investors that have grown up with the mindset that stocks always go up forever and any pain on the downside is relatively short-lived and manageable. We may continue to see that for the next 100 years. Or, we may not.

 

I am in my last 5-10 years of a career and on track for a comfortable retirement.  I have a high paying salary now, but it’s likely my last one based on what I’m seeing with peers who are in the job market today.  Given that my future salary will more than likely be reduced, I will not have a runway of peak earning years to recover from big market losses if they happen in my time left.

So I’m looking to be more defensive with the assets in my portfolio generally while also setting up for interest payments that will be A) reinvested while I have the high paying job, B) drawn from (if necessary) to offset salary shortfalls whenever the high paying job goes away or C) drawn from in retirement.

  • Like 1
Posted
12 minutes ago, Dbeasy said:

horizon. If he's at or near retirement the value as a portfolio diviersifier is exactly as I just described,

I’m not sure that’s true. It’s only diversifying to the extent that the return isn’t correlated to the other assets in the portfolio, which depends on the specifics. 

Posted

When people ask me how much money is enough that they don't have to worry about retirement money, I always tell them that if their spending needs in retirement are below the level of interest and dividends kicked out of the portfolio every year, then you really don't have to worry too much about retirement money. When you have to rely on a certain return from the portfolio, above interest and divideds, then you tend to worry about your portfolio performance. 

In living off dividends and interest, in a downturn, dividends may get cut but they don't usually get cut that bad and they recover over time. So the worry there is pretty muted.

Of course, what I don't tell them is that as soon as they get comfortable living on dividends and interest, a lot of people want to ramp up their spending :)

  • Hook 'Em 2
Posted
4 minutes ago, Bozo_Casanova said:

I’m not sure that’s true. It’s only diversifying to the extent that the return isn’t correlated to the other assets in the portfolio, which depends on the specifics. 

Well there's no value in you and me arguing about it. Your better bet is to go argue with the entire world's financial industry analyses. It's math. 

  • Hook 'Em 1
Posted

What many people dont understand is that under the PostModern Portfolio Theory, the ideal 60/40 portfolio actually refers to an allocation of 60% Trumpcoin and 40% Kamalacoins

 

IMG_0088.jpeg

IMG_0087.jpeg

  • Haha 2
Posted

Here is a simple comparison of a 100% US Total Stock Market Portfolio Performance over 30 years with a 4.5% withdrawal rate. Note that the future expected returns on stocks for the next 10 years is well below this monte carlo simulation. Performance could be way worse. Nevertheless, the portfolio fails 16% of the time.

image.thumb.png.6a391405c0d75fad2b5e332c861f068e.png

Now, here is a 60% stock/ 40% Total Bond Market Porfolio with the same other parameters. You lose on the upside potential, but your chances of total failure drop by 9%.

image.thumb.png.b29db21aac61b1248f4ef1be409cf497.png

 

A 50% Trump Coin and 50% Doge Coin will produce a 100% certainty of success because we live in Idiocracy.

 

Posted (edited)
33 minutes ago, Dbeasy said:

Well there's no value in you and me arguing about it. Your better bet is to go argue with the entire world's financial industry analyses. It's math. 

That’s fine, but I’m not arguing with the analyses or the math, which say correlation varies with specifics and rises and falls based on a number of factors, and at the very least those factors are related, which is problematic w/r/t diversification. And they also say you can have protection of principal, or present value, but not both. 
But I do agree that the  conventional wisdom is that bonds are diversifying to equities and a lot of people do take it for granted. 

Edited by Bozo_Casanova
Posted

The bottom line on retirement is.... hold your breath... math!  I have been semi-retired for a while now.  Wife still works full time, mainly to make sure we have good insurance coverage.  I make money in the market, doing remodels, and make my money more in chunks.  We sacrificed salary in our prime years to spend more time with our kids, and we are glad we did.  The good news is we have been using the catchup rules, and poured a lot more into her 401K the last couple years as the market rose.  Which also reduced our taxable income this coming year, but next year is going to be a doozy on cap gains.  

I honestly don't know that I will ever completely retire.  She probably will at some point, but the plan now is for her to cut back to part time when she turns 65, and then she will see how it goes.  But one thing that I think is true for us, we would be bored doing nothing while we are still in good health (knock on wood).  We also have not received any inheritance from either of our families, and that will likely cascade through in the next couple years.   The main thing is to try to maintain our health for quality of life.  

If we can have a few more years of putting money aside, we should be ok.  Not a lavish lifestyle, but I don't think we are going to have to worry unless we spend extremely unwisely.  The one factor I think that might be a fly in the ointment from a fiscal planning perspective is fucking insurance.   Not the health kind. But the home and car kind? IF you were on a tight fixed income the last two years, that is where I see my budget out of whack from expectation.

I have about 5 years to create an additional $3,000 a month.  As my BIL said when he did not take the Fed buyout, if he can hang on 3 more years, it would be the difference between being just fine, and taking that annual trip to Europe.  Of course if I croak, I won't have to worry about a thing!

 

 

  • Hook 'Em 2

Join the conversation

You can post now and register later. If you have an account, sign in now to post with your account.

Guest
Reply to this topic...

×   Pasted as rich text.   Paste as plain text instead

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.



×
×
  • Create New...