Bear Market? I See a Bull Market for the Next 15-20 Years Kiplinger-1/1/16
The stock market will deliver only“... slightly more than a third of its long-term average,”-Mark Hulbert in MarketWatch 3/22/21 No One Has Slightest Idea When the Bull or Bear Will End- James Glassman-2/6/18 |
ORDINARY INVESTOR'S GUIDE addresses a problem facing the Ordinary Investor-seemingly trustworthy sources of financial forecasts and investing advice contradict each other answering basic questions. We keep a diary of 2021-2030 to see how you should have answered the following:
Is a Fixed Rebalanced Portfolio A Good Choice?
For decades you have been told to put 60% of your assets in stocks and 40% in bonds, rebalance maybe once a year and forget about it. Now you read that the 60-40 portfolio is "dead"! What is this about?
Why Not Put All Your Investment Money Into A Single Fund Which Meets Your Needs?
If you believe in a fixed, rebalanced approach, you will likely find a fund which exactly meets your requirements. You would think you could safely put all your money into that fund and forget it. Fidelity or Vanguard is not going to go broke or lose your money. But no, you read you must have more than one fund. Which ones? What is this about?
For Stocks, Should You Buy Individual Stocks Or Mutual Funds?
You are told never to buy individual stocks but use mutual funds instead. Stocks touted by the popular press usually underperform the S&P 500 for some reason (see "Stock Picking"). Putting all your money into one or two stocks seems like gambling unless you are clairvoyant. But what if a stock-selection newsletter or stock advisor has a long track record of choosing individual stocks which on average outperform the market?
If You Use Mutual Funds, Should They Be Index Funds or Actively Managed?
You are told the average actively managed stock fund underperforms the underlying index so you might as well just invest in an index fund or funds. But S&P 500 stock index funds have delivered a meager 7.4% annually over the last 22 years. Is no one above average? What if an actively managed fund has a long track record of outperforming stock indexes?
Should You Ever Change Your Asset Mix Based On Market Conditions (time the market?)
You are told you can't time the market so don't tinker with your allocations even though stocks appear to be tanking or about to take off. But see the next question.
In The Next Ten Years Are Stock Prices Going To Rise Steadily, Suffer 50% Drops During Recessions, or Stagnate?
-You will read that stocks are in the middle of a 20 year secular bull market (steady 10-20% rises every year). If true you should be in the stock market and ignore any "buy/sell" signals you may read about (don't market time).
-But wait! You may also read that we are not in a secular bull market but are due for one or two recessions in the next 10 years with 50% market drops. Now you will want to pay attention to "buy/sell" signals because you want to be out of the stock market when we tip into recession (see 2000-2010). You will want to be flexible (you are a market timer).
-Then again you may read that we are going to suffer 10 years of "secular stagnation/inflation", neither bull markets or recessions but very low real returns (4% annually?) on stocks. "Buy/sell" signals will likely result in buying and selling at the wrong time because the market has no direction. Avoiding the stock market completely may be a good idea. Maybe individual stocks will make some money.
So who's right?
Should Bonds Be A Part Of Your Portfolio?
You may be reading that bonds will no longer deliver the returns they have in the past or may even lose money. What about the 60-40 stock-bond portfolio? Do you have to tinker with the types of bonds? (Sounds like timing the bond market.)
Do You Need To Invest In Real Estate, Gold, Emerging Markets or More To Achieve "Diversity"?
Diversity is a popular topic and there are three kinds of diversity: diversity within a sector, owning many stocks and/or types of stocks and not just one or two, diversity across sectors, owning more than just stocks for example, and diversity across time (being invested in different assets at different times- or- market timing). You will commonly read that diversity across sectors protects you against large stock market losses and you really should look into emerging market bonds and stocks, gold, commodities, real estate or even bitcoin. Or you may read that this is nonsense- what emerging market should you invest in and how much gold should you buy? Does it really help? Diversity is supposed to counter 50% stock market plunges. But these have occurred only 5 times in 100 years. What about this?
We explore all these questions in several decision flow charts with real investment examples and with discussions of each of the questions above.
Start with a look at What To Invest In.
Start with a look at What To Invest In.