As we watch indices (or particular stocks) reach heights that are not justified based on a historical measures, I am beginning to wonder if stock performance has become less connected to the measures everyone has used to determine valuations. Also, as we contemplate the state of various world economies - especially growing nationalism - does historical investing advice make sense?
I have a theory that I would love an opinion on from this esteemed group.
Growing income inequality has created "The New Investor" who has determined the only way to "catch up" is to take strategies that have typically been viewed as very risky. This investor doesn't really care about market fundamentals (P/E, EPS, etc) or mundane things like asset allocation. They really only care about "buzz" and the potential return based upon very short historical performance. I could call out the rise in options trading, crypto and certainly a number of stocks that have more "buzz" than real performance. I could also point out the rise of gambling on everything which reflects the addictive nature of "the chase for the highest return". Also, don't forget the impact of social media to create an unrealistic vision of what life should be.
Why does this matter to Bogleheads?
This group is built on a simple three fund portfolio with a long term approach to investing. History has shown that trying to beat the market is a fools errand and diversification is the key to long term stability and success. I would posit that "The New Investor" requires the group to revisit the three fund portfolio. Bonds have been in the tank and international stocks have been a drag for quite a while. I don't see this EVER turning around with The New investor and the world they live in.
Will "The New Investor" EVER find the returns they are looking for (and what they need) for retirement with bonds? I don't think so. Even in bond's best years, you can't extrapolate out the majority of US citizen's retirement investment limits to allow them to reach a comfortable retirement. For this reason, The New Investor will bail on bonds - who cares about long term stability?>
Will "The New Investor" EVER have the confidence they need to invest in international stocks? There will be minor exceptions of course, but the buzz around technology they see in the US makes them think they understand where the new tech is going (think AI or crypto) without any thought about a business model. It blows my mind to think that MSCI EAFE outperformed the S&P in the 70s and 80s, but that was before income inequality created The New Investor.
This has led me to (reluctantly) rethink the three fund portfolio and propose a diversified portfolio of only US stocks. The new three/four funds will be: a Dividend Stock Fund (mainly utilities and old school consumer goods) to replace bonds; a Small Cap Fund (50% growth, 50% value) to replace international stocks because of the good growth opportunities but also because of the potential risk, and an S&P500 Fund to replace the all US stocks. My unanswered question is what the allocation should be for this new strategy.
I am sure that a long term analysis of the past performance of this approach will not be favorable, but when viewed through the lens of "The New Investor" and changing demographics, I think it is worth considering.
I appreciate your thoughts and comments....
PS - If I were really committed to this theory I might go with a Crypto Fund, an S&P500 Fund and trade options on tech stocks on the side, but I am too lazy for that![:-)]( "Smile")
I have a theory that I would love an opinion on from this esteemed group.
Growing income inequality has created "The New Investor" who has determined the only way to "catch up" is to take strategies that have typically been viewed as very risky. This investor doesn't really care about market fundamentals (P/E, EPS, etc) or mundane things like asset allocation. They really only care about "buzz" and the potential return based upon very short historical performance. I could call out the rise in options trading, crypto and certainly a number of stocks that have more "buzz" than real performance. I could also point out the rise of gambling on everything which reflects the addictive nature of "the chase for the highest return". Also, don't forget the impact of social media to create an unrealistic vision of what life should be.
Why does this matter to Bogleheads?
This group is built on a simple three fund portfolio with a long term approach to investing. History has shown that trying to beat the market is a fools errand and diversification is the key to long term stability and success. I would posit that "The New Investor" requires the group to revisit the three fund portfolio. Bonds have been in the tank and international stocks have been a drag for quite a while. I don't see this EVER turning around with The New investor and the world they live in.
Will "The New Investor" EVER find the returns they are looking for (and what they need) for retirement with bonds? I don't think so. Even in bond's best years, you can't extrapolate out the majority of US citizen's retirement investment limits to allow them to reach a comfortable retirement. For this reason, The New Investor will bail on bonds - who cares about long term stability?>
Will "The New Investor" EVER have the confidence they need to invest in international stocks? There will be minor exceptions of course, but the buzz around technology they see in the US makes them think they understand where the new tech is going (think AI or crypto) without any thought about a business model. It blows my mind to think that MSCI EAFE outperformed the S&P in the 70s and 80s, but that was before income inequality created The New Investor.
This has led me to (reluctantly) rethink the three fund portfolio and propose a diversified portfolio of only US stocks. The new three/four funds will be: a Dividend Stock Fund (mainly utilities and old school consumer goods) to replace bonds; a Small Cap Fund (50% growth, 50% value) to replace international stocks because of the good growth opportunities but also because of the potential risk, and an S&P500 Fund to replace the all US stocks. My unanswered question is what the allocation should be for this new strategy.
I am sure that a long term analysis of the past performance of this approach will not be favorable, but when viewed through the lens of "The New Investor" and changing demographics, I think it is worth considering.
I appreciate your thoughts and comments....
PS - If I were really committed to this theory I might go with a Crypto Fund, an S&P500 Fund and trade options on tech stocks on the side, but I am too lazy for that
Statistics: Posted by WhenWillWeGetThere — Fri Jan 03, 2025 3:03 pm — Replies 0 — Views 15