Comments on: The Hard Truth About Stocks – a Follow-Up

By: 401k Planner

401k Planner — Thu, 10 Dec 2009 03:24:56 +0000

It is unbelievable that the stock market is about to finish the year in a plus percentage. Considering the down years from 2007 and 2008, 2009 will double the outgain from the following two years.

Ok, so the question for this story should be to vote for 2011 and what to expect.

By: Mr. ToughMoneyLove

Mr. ToughMoneyLove — Wed, 28 Oct 2009 19:12:45 +0000

JimmyDaGeek: The second part of your comment contradicts your statement that Bodie is wrong. Look what happened in 2008-2009 to long term investors, proving Bodie is right. We don’t need to know why the market tanks to understand that it has and that it will again. If you want to take that risk (a crap shoot as you say) with your baseline retirement income, that’s your choice. Not me.

By: JimmyDaGeek

JimmyDaGeek — Wed, 28 Oct 2009 19:01:25 +0000

Bodie is wrong, wrong, wrong. In the short term, the market is a crap shoot. Of course, the market could go down again, but why? He doesn’t address that, he just makes a flat-out statement. The whole idea of reduced risk assumes that different asset classes move differently in any given market. Of course, if the economy went to hell, like it did in the last year or so, all asset classes are going to drop. But there are exceptions. Look at Walmart!

By: 401k Investment Advice

401k Investment Advice — Mon, 19 Oct 2009 22:09:46 +0000

Now that you mention the Dow Jones Index above 10,000 points as it was in 1999 does bring back memories. I do recall when March 2000 came because 90% of stocks when south. The year 2000 was a bear market until mid 2003.

I do feel that the market has rebounded tremendously and it is amazing considering there is no real reason. Unemployment and earnings from many companies are not booming like it did in 2003.

By: kitty

kitty — Sun, 18 Oct 2009 18:21:45 +0000

@TML – I actually agree with you. I was about 60% invested before the crash (less in 401K more in taxable accounts), hence my losses haven’t been nearly as dramatic. I bought a bit more stocks this year – both in 401K and in my taxable accounts, also some corporate and municipal bonds last year and in the beginning of this year when the yields were great. This worked out pretty good – my return-on-investment in 401K since January 2008 is -10%; my return in taxable account is positive probably because of the strong performance of my ESPP stock. Regardless, -10% ROI in 401K is a miserable return but way better than that of most people.

But recently I moved a little bit of money in 401K to stable value, reducing the percentage of stocks in 401K to 40%. In taxable accounts it’s around 55%. I am still buying though, but depending on what I see happening, I might reduce the percentage that goes into stocks there as well. But finding a good place for the money now is tricky: stocks and commodities run up quite a lot and so did the bonds; CDs are yielding very little, current I-bonds return is 0% and fixed portion is pitieful, TIPs aren’t yielding much these days either.

So yes, I agree about keeping a large portion of retirement money safe. All savings because whether you label money for retirement specifically or not, any money you aren’t spending now are there for retirement.

I also think that one should consider if one even needs to risk the money. If someone will have enough with risk-free investments, there is no need to invest anything in riskier investments.

By: Mr. ToughMoneyLove

Mr. ToughMoneyLove — Fri, 16 Oct 2009 15:02:47 +0000

Rob – I agree with your observations but will add this: Use Bodie’s ideas for worst case scenario planning – to secure a baseline level of inflation-adjusted retirement income. Use the rest of your money to wisely invest in the market, taking into account valuation levels. If you are fortunate and wise, your retirement income goes up. If the market tanks despite your best efforts, you still have that baseline income to fall back on.

Kitty and MasterPo – The dividend yield is helpful but for a broad index investor, not enough by itself to beat inflation. Plus many of the “best” dividend stocks cut or eliminated dividends in 2008-2009. For these reasons, I still say that 1999-2009 was a lost decade for the long-term investor.

I am in the market and will stay in the market. It’s just that I’m going to secure a baseline retirement income with TIPS and I-Bonds to eliminate the risk of having to “unretire” or live on beans and rice.

By: Rob Bennett

Rob Bennett — Fri, 16 Oct 2009 14:47:53 +0000

Bodie and Bogle are the two extremes. Bogle says “ignore prices and just go with the same stock allocation at all times.” That’s never worked. Bodie says “avoid stocks.” That delays your retirement by many years. That’s some price to pay for wanting to avoid taking on insane levels of risk.

How about investing in stocks responsibly by taking valuation levels into account when setting your allocation? When the price on stocks is so high that you can get a better long-term return on risk-free asset classes, avoid stocks. When stocks offer the better long-term return, go with stocks. To me that’s a healthy balance of the desire to obtain a decent return with the desire to avoid wipeouts.

Rob