Investing

Would you bet against the S&P 500?

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  • Dec 14th, 2017 2:26 pm
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[OP]
Jr. Member
Oct 29, 2017
115 posts
13 upvotes

Would you bet against the S&P 500?

Take a look at their 30 year returns listed on https://ycharts.com/indicators/sandp_50 ... urn_annual

1. In 30 years, they had 5 down years
2. The index includes some of the best companies in the world including Google, Amazon, Facebook and these have a global reach.

Could analysts that preach 90% of your investment in the S&P 500 be right that this is the way to go?
33 replies
Deal Addict
Oct 6, 2015
1303 posts
684 upvotes
The US stock market is extremely heavily dependant on US consumer consumption. All three of those firms you name would (and arguably will) suffer enormously in a post-consumerism US economy that is characterized by saving and repaying prior debt, rather than spending.

The S&P500 lacks meaningful exposure to some pretty significant sectors of the economy, such as mining. S&P500 components are highly "financialized". The credit crisis of 2008/2009 taught us that the US economy is one short-term financing crisis away from implosion, as a large number of firms are reliant on short term credit.

The United States makes up less than 10% of the population of the Earth. I see no reason why one would want to weight their investment significantly greater than that. There are plenty of great opportunities elsewhere in the world.
Deal Fanatic
May 31, 2007
5000 posts
2109 upvotes
No I would not bet against it, but take opportunity to purchase more when stock markets are cheaper. Do this in a balanced portfolio of ETFS like couch potato.

The 90% advice was mainly for Americans.
Member
Aug 16, 2015
275 posts
38 upvotes
burnt69 wrote:
Dec 1st, 2017 7:07 pm
The US stock market is extremely heavily dependant on US consumer consumption. All three of those firms you name would (and arguably will) suffer enormously in a post-consumerism US economy that is characterized by saving and repaying prior debt, rather than spending.

The S&P500 lacks meaningful exposure to some pretty significant sectors of the economy, such as mining. S&P500 components are highly "financialized". The credit crisis of 2008/2009 taught us that the US economy is one short-term financing crisis away from implosion, as a large number of firms are reliant on short term credit.

The United States makes up less than 10% of the population of the Earth. I see no reason why one would want to weight their investment significantly greater than that. There are plenty of great opportunities elsewhere in the world.
This is just total crap honestly. USA corporations control the world. Mcdonalds (and probably a million others) are in Canada to UK to China.
"There are plenty of great opportunities elsewhere" is about the only part I can agree with.

I was thinking about this yesterday OP. Almost all the good Canadian companies are interlisted. There is basically NO reason to keep CDN. There's so many ADRs you can invest in with USD too.
Sr. Member
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Feb 1, 2012
839 posts
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Thunder Bay, ON
From 2000 to 2009 (a full decade) the S&P500 had a compound return of -2.3% (in US$). If you started with $1000 on Jan 1, 2000 you would only have $790 left at the end of 2009. 10 years is a long time to still be down 20%

For that same time period, the TSX Composite had a compound return of 7.5%.

And Emerging Markets had a return of 8.6%

Calculations are in US$ from Stingy Investor Asset Mixer

That's why we diversify.
Invest your time actively and your money passively.
Member
Aug 16, 2015
275 posts
38 upvotes
Deepwater wrote:
Dec 1st, 2017 9:38 pm
From 2000 to 2009 (a full decade) the S&P500 had a compound return of -2.3% (in US$). If you started with $1000 on Jan 1, 2000 you would only have $790 left at the end of 2009. 10 years is a long time to still be down 20%

For that same time period, the TSX Composite had a compound return of 7.5%.

And Emerging Markets had a return of 8.6%

Calculations are in US$ from Stingy Investor Asset Mixer

That's why we diversify.
LOL. you cherry pick this time period then post this as if it means something.
Sr. Member
Nov 6, 2015
640 posts
243 upvotes
Guelph, ON
Deepwater wrote:
Dec 1st, 2017 9:38 pm
From 2000 to 2009 (a full decade) the S&P500 had a compound return of -2.3% (in US$). If you started with $1000 on Jan 1, 2000 you would only have $790 left at the end of 2009. 10 years is a long time to still be down 20%

For that same time period, the TSX Composite had a compound return of 7.5%.

And Emerging Markets had a return of 8.6%

Calculations are in US$ from Stingy Investor Asset Mixer

That's why we diversify.
What was it from 1999 to 2008? Or 2001 to 2010?
Deal Addict
User avatar
Apr 12, 2012
1556 posts
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Toronto
JoeBlack23 wrote:
Dec 2nd, 2017 12:05 am
What was it from 1999 to 2008? Or 2001 to 2010?
I think it means Jan 1st 2000 till the end of 2009.
Sr. Member
Oct 21, 2014
920 posts
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Burlington, ON
Looks like the tax bill passed the senate, with a resounding 51 yays to 49 nays.
Sr. Member
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Feb 1, 2012
839 posts
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Thunder Bay, ON
kilburn305 wrote:
Dec 1st, 2017 10:53 pm
LOL. you cherry pick this time period then post this as if it means something.
And the OP cherry picked a time period after an 8 year bull market that masked a lot of volatility and some long periods of underperformance. I referred to a full decade, so it's not like I picked an arbitrary time.

The time period to which I referred would be very meaningful to someone that retired in late 1999 or early 2000, expecting their savings to last 30 years, where in reality if they withdrew 4% inflation adjusted each year, half their savings would be gone after 10 years. Or someone that planned to retire in 2010 saw basically zero investment gains for a decade.

The OP has asked a lot of good questions. Much of investing is not intuitive. Many investors want to buy the latest high performing assets, but regression to the mean often results in those having low performance going forward. Asset classes and geographic regions often move contrary to each other, and diversification is an important tool to reduce volatility, which is particularly important for investors drawing capital from a portfolio. There are several books including The Four Pillars of Investing by William Bernstein and All About Asset Allocation by Rick Ferri that illustrate what I am saying. Stock Series by J L Collins also has a lot of savvy investing knowledge.

I still hear investors complaining how much they lost in 2008 and how that has impacted their standard of living. Those that don't learn from history are doomed to repeat it. Those that do learn from history are doomed to watch others repeat it.
Invest your time actively and your money passively.
Sr. Member
User avatar
Feb 1, 2012
839 posts
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Thunder Bay, ON
JoeBlack23 wrote:
Dec 2nd, 2017 12:05 am
What was it from 1999 to 2008? Or 2001 to 2010?
S&P500:
1999-2008: -2.6%
2001-2010: 0.0%
Those were some horrendous years for investing, especially in US markets.
Invest your time actively and your money passively.
Deal Fanatic
May 31, 2007
5000 posts
2109 upvotes
Deepwater wrote:
Dec 2nd, 2017 11:17 am
S&P500:
1999-2008: -2.6%
2001-2010: 0.0%
Those were some horrendous years for investing, especially in US markets.
People only looking at the US stock market recently that's why.

Again as you said, the 2000s was a long, ugly time for this index. However the TSX, Bonds and International pulled away during that time.

That's why you have BALANCED portfolio. When somethings not working, another thing is. Helps prevent you from making wrong shifts in your asset allocation which pretty much lead to market timing.

Can you hold an index for 10 years when it goes flat while everything else is going gangbusters? Probably not.
Deal Fanatic
May 31, 2007
5000 posts
2109 upvotes
Also picking the index that has returned the highest over the last 10 years will likely lead to lower future returns. Especially since USA is in later economic cycle than Canada and the rest of the world.
INT and TSX index could easily outperform in the future.

Given our dollar so low, IMO loonie only has room to go up (especially since our economy is rebounding) and will drag on USD dominated funds especially.
[OP]
Jr. Member
Oct 29, 2017
115 posts
13 upvotes
Deepwater wrote:
Dec 1st, 2017 9:38 pm
From 2000 to 2009 (a full decade) the S&P500 had a compound return of -2.3% (in US$). If you started with $1000 on Jan 1, 2000 you would only have $790 left at the end of 2009. 10 years is a long time to still be down 20%

For that same time period, the TSX Composite had a compound return of 7.5%.

And Emerging Markets had a return of 8.6%

Calculations are in US$ from Stingy Investor Asset Mixer

That's why we diversify.
I don't profess to know the history of what was taking place at that time, but would you happen to what was going on during the 10 year period you quoted that resulted in the S&P 500 under performing by so much while the Canadian and International markets were up by so much?
Deal Fanatic
May 31, 2007
5000 posts
2109 upvotes
Basically since 1990 to 2000, the s&p500 went over 5X fold

Then Dot com crash in 2000
911 in 2001

Also CAD went from .65 in 2002 to par 2010

Usually when something does really well for a long time, eventually it takes a breather. You can never time that hence why its recommended to just buy and hold a balanced portfolio.

Also, every economy goes through different stages and timing of cycle.

For example, the USA is in a later stage of expansion compared to Canada right now.

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