Following Buffet's advice re S&P 500 ETF

Hup Ya Boya

Hi all

Most of you are probably aware of his latest shareholder letter, in which he advises to dump your cash into a low cost S&P fund, is this wise advice, especially with the markets at all time highs?

mickman

Hup Ya Boya wrote: »

Hi all

Most of you are probably aware of his latest shareholder letter, in which he advises to dump your cash into a low cost S&P fund, is this wise advice, especially with the markets at all time highs?

advice from the richest investor in the world is always to be heeded. He doesnt bother with market timing, he just says the market will be higher in 20 years than it is now

lucky john

He also said his railway and energy investment will be thriving a century from now. So when he says dump money in an account he expects it to be left there for your great grandchildren. Buffets way has always been buy on a dip and let time be your friend.

beardy_smith

its terrific advice for the vast majority of people including myself

i started buying shares in late 2011 and got serious around the end of 2012 , had i simply stuck everything in the vanguard S+P etf which has a managment fee of .05% , id be just as well off , instead i bought and sold many stocks and while i learned more about the whole thing , it was very stressful at times , most people are not smart enough to time the market well enough , they may succeed for a while but over a long period , passive investment is best and provided you have patience , its more or less impossible to loose money , even you bought the day before the market crash of 1987 , by 2007 , you were much much wealthier , the s+p dividend today is not a lot lower than what most banks are paying after DIRT is deducted

i wouldnt buy the s+p today however , its pricey , would be better in the best possible savings account for a year to see what happens

willietherock

if you are buying the S+P 500 aren't you taking on currency risk assuming you are euro?

beardy_smith

willietherock wrote: »

if you are buying the S+P 500 aren't you taking on currency risk assuming you are euro?

its not like your buying something which is denominated in indian rupees

the dollar is the safest currency in the world and the go to when the sh1t hits the fan

anyway you can buy the s+p hedged through ishares , check out their website

Amirani

beardy_smith wrote: »

its not like your buying something which is denominated in indian rupees

the dollar is the safest currency in the world and the go to when the sh1t hits the fan

anyway you can buy the s+p hedged through ishares , check out their website

I presume the previous poster is referring to exchange rate risk, which is obviously relevant when buying dollar denominated securities.

beardy_smith

Diego Simeone wrote: »

I presume the previous poster is referring to exchange rate risk, which is obviously relevant when buying dollar denominated securities.

i know what he is refering to and i stand by what i said

besides a weak dollar is good for many american companies , even the dollar euro trade is weak , the higher stock price negates the forex downside

its a non issue

willietherock

beardy_smith wrote: »

i know what he is refering to and i stand by what i said

besides a weak dollar is good for many american companies , even the dollar euro trade is weak , the higher stock price negates the forex downside

its a non issue

taking on extra risk is never a non issue. You did give the answer in iShares hedged etfs.

beardy_smith

willietherock wrote: »

taking on extra risk is never a non issue. You did give the answer in iShares hedged etfs.

many of the worlds greatest companies are denominated in dollars

google
general electric
exxon mobil

how is owning these stocks any less of a currency risk ?

a weak dollar benefits american exporters , if this in turn drives up their stock price ( which it should ) , the weaker dollar euro trade should be negated

an alternative is a global index etf which is around 50% north america , 40% europe and japan and 10% emerging markets

DarkDusk

I'd be very cautious right now in regards to investing in stocks. I believe the S&P and Nasdaq are in for a major correction soon. On a cyclical basis the S&P has now broken its daily cycle trend line, which is the first confirmation that the daily cycle has topped and begun moving down into its daily cycle low. Considering that trough isn't due until around the June employment report there is a lot of time for the market to drop yet (about 15-20 trading days). The odds are high that the intermediate trend line will also be broken in the near future. When that happens it will confirm that the next larger intermediate degree cycle is also in decline.

I'm watching the markets very closely for the next few weeks, I think they will prove to be very interesting. I will also say that it is no coincidence that stocks are at all time highs and appear to be topping out and at the same time commodities are beginning to come out of their decline, repeat patterns of what happened in 07/08.

Be careful guys.

nagirrac

The best timing signal I have seen in my analysis of the stock market is the VTI/TLT 3 month switch. Plot the 3 month returns at the end of each week for the two ETFs and go aggressively into stocks when VTI is positive and go defensive when you get a VTI --> TLT switch. This would have got you out of the stock market in mid 2008 and back in mid 2009. It would have also got you out in summer 2011 ahead of the 18% drop in August - Sept that year. There was one short term switch in early 2012 and nothing since then, a long period of stocks effectively going up without pause.

A VTI --> TLT switch occurred April 4th and has been confirmed each week since. TLT is up 10% YTD and the stock market is effectively flat, a very bearish signal for stocks and an indication that smart money is getting defensive. Combined with the drop in small caps which always prefaces a broader market decline, this is a very bearish set up, regardless of the lack of volatility and bullish sentiment from most market commentators.

You can never time the market precisely and it is foolish to try, but all the signs are there for a correction within the next few months.

DarkDusk

nagirrac wrote: »

The best timing signal I have seen in my analysis of the stock market is the VTI/TLT 3 month switch. Plot the 3 month returns at the end of each week for the two ETFs and go aggressively into stocks when VTI is positive and go defensive when you get a VTI --> TLT switch. This would have got you out of the stock market in mid 2008 and back in mid 2009. It would have also got you out in summer 2011 ahead of the 18% drop in August - Sept that year. There was one short term switch in early 2012 and nothing since then, a long period of stocks effectively going up without pause.

A VTI --> TLT switch occurred April 4th and has been confirmed each week since. TLT is up 10% YTD and the stock market is effectively flat, a very bearish signal for stocks and an indication that smart money is getting defensive. Combined with the drop in small caps which always prefaces a broader market decline, this is a very bearish set up, regardless of the lack of volatility and bullish sentiment from most market commentators.

You can never time the market precisely and it is foolish to try, but all the signs are there for a correction within the next few months.

Adding to this, VIX options are cheaper than any time in the last 8 years. A spike in the VIX in the next 4-8 weeks would be on time for the stock market's yearly cycle low... Danger ahead

FURET

Diego Simeone wrote: »

I presume the previous poster is referring to exchange rate risk, which is obviously relevant when buying dollar denominated securities.

Good point. I get paid in UAE dirhams, a dollar-pegged currency, and am wondering whether to establish my base cuurency for my Saxo account in euros or dollars.

• If I go with dollars, I will get a stable exchange rate for as long as I am paid in UAE dirhams
• If I go with euros (which might be a good idea if I move back to Europe), if the value of the dollar falls relative to the euro, my investments won't suffer very much.

Any advice?

nagirrac

FURET wrote: »

Good point. I get paid in UAE dirhams, a dollar-pegged currency, and am wondering whether to establish my base cuurency for my Saxo account in euros or dollars.

• If I go with dollars, I will get a stable exchange rate for as long as I am paid in UAE dirhams
• If I go with euros (which might be a good idea if I move back to Europe), if the value of the dollar falls relative to the euro, my investments won't suffer very much.

Any advice?

In my opinion the Euro is more likely to go down in the coming months relative to the dollar. A high Euro is hurting European exports and any simulative actions taken by the ECB are likely to drive down the Euro versus the dollar and other currencies. Just my 2c, based on US Fed ending its easing program and ECB possibly ramping one up to stimulate growth.

Euro:US $ has gone from 1.20 to 1.40 over the past two years, I think its more likely to head back down towards 1.20 than go over 1.40.

nagirrac

DarkDusk wrote: »

Adding to this, VIX options are cheaper than any time in the last 8 years. A spike in the VIX in the next 4-8 weeks would be on time for the stock market's yearly cycle low... Danger ahead

The VIX is low but its just a reflection of the sideways movement of US equity indices for the past 2 months and the expectation they will stay like that for the next few months. Buying the dips has kept volatility at bay. It has been as low as this in the past, in particular 2007, and we all know what happened after that. Even short term there is a VIX spike of 20-30% every 6 weeks or so, so we are due one, but if the market tanks 10% or more the VIX will double or even triple from these levels.

Browney7

nagirrac wrote: »

The VIX is low but its just a reflection of the sideways movement of US equity indices for the past 2 months and the expectation they will stay like that for the next few months. Buying the dips has kept volatility at bay. It has been as low as this in the past, in particular 2007, and we all know what happened after that. Even short term there is a VIX spike of 20-30% every 6 weeks or so, so we are due one, but if the market tanks 10% or more the VIX will double or even triple from these levels.

No doubt equity valuations are lofty compared to a few years ago and some signs may be pointing to a crash but with interest rates being so low now compared to 2007 its very hard to call what will happen

simongurnick

I think the current neutral sentiment is more likely to bring volatility than a bear market. Summer doldrums...be careful!

nagirrac

Browney7 wrote: »

No doubt equity valuations are lofty compared to a few years ago and some signs may be pointing to a crash but with interest rates being so low now compared to 2007 its very hard to call what will happen

I agree as long as the fed are accommodative, the likelihood of a 2008 like crash is unlikely. There is still the niggling worry though that the recovery isn't real and that if Q2 is weak like Q1 this will confirm what a lot of people think which is that for the majority of the US population there is no recovery, just stagnant wages and increasing costs. Although the official numbers point to low inflation, in reality the goods that consumers need most i.e. food and gas, have increased significantly, +10% since the beginning of 2014 alone. What this translates to is consumers, whose real wages are flat or declining, have no discretionary income, so companies selling discretionary products will see declines. The retail numbers in the US are very weak, something that has been blamed on weather in Jan/Feb.

The market has been on a slow grinding upward movement on very low volume since early March, and certainly could continue in this mode for months. However, imo, one set of data that suggests Q2 will also be weak and companies start saying the outlook for the second half of the year is weaker than expected, the whole thing comes crashing down. The summer is generally when bad things happen, and as you say we are very lofty. Bond yields declining as stocks increase is a very worrying trend that has never lasted very long, either bond yields go back up or stocks decline. I simply cannot imagine short term what would drive yields back up as I think most investors have figured out interest rates are not going up, or simply cannot be allowed to go up, as higher interest rates would demolish the little bit of growth we are seeing.

Browney7

nagirrac wrote: »

I agree as long as the fed are accommodative, the likelihood of a 2008 like crash is unlikely. There is still the niggling worry though that the recovery isn't real and that if Q2 is weak like Q1 this will confirm what a lot of people think which is that for the majority of the US population there is no recovery, just stagnant wages and increasing costs. Although the official numbers point to low inflation, in reality the goods that consumers need most i.e. food and gas, have increased significantly, +10% since the beginning of 2014 alone. What this translates to is consumers, whose real wages are flat or declining, have no discretionary income, so companies selling discretionary products will see declines. The retail numbers in the US are very weak, something that has been blamed on weather in Jan/Feb.

The market has been on a slow grinding upward movement on very low volume since early March, and certainly could continue in this mode for months. However, imo, one set of data that suggests Q2 will also be weak and companies start saying the outlook for the second half of the year is weaker than expected, the whole thing comes crashing down. The summer is generally when bad things happen, and as you say we are very lofty. Bond yields declining as stocks increase is a very worrying trend that has never lasted very long, either bond yields go back up or stocks decline. I simply cannot imagine short term what would drive yields back up as I think most investors have figured out interest rates are not going up, or simply cannot be allowed to go up, as higher interest rates would demolish the little bit of growth we are seeing.

Sell in May and go away as they say! No doubt a lot of the "recovery" in the stock market is due to more people buying equities due to the paltry returns on offer in the fixed interest environment than investor confidence.

When interest rates start to creep up things might start to get hairier!

househero

Browney7 wrote: »

.

When interest rates start to creep up things might start to get hairier!

Do you believe this will be ECB or Fed instigated? Yellen seems WAY too Dovish for my liking, removing the quantitive measurements for a 'we will taper when I feel like it' seems go have unreasonably steadied a balooning market that may be in for a Euro led market shock rate rise. (Encouraged by our us cousins)

phantom_lord

beardy_smith wrote: »

its terrific advice for the vast majority of people including myself

i started buying shares in late 2011 and got serious around the end of 2012 , had i simply stuck everything in the vanguard S+P etf which has a managment fee of .05% , id be just as well off , instead i bought and sold many stocks and while i learned more about the whole thing , it was very stressful at times , most people are not smart enough to time the market well enough , they may succeed for a while but over a long period , passive investment is best and provided you have patience , its more or less impossible to loose money , even you bought the day before the market crash of 1987 , by 2007 , you were much much wealthier , the s+p dividend today is not a lot lower than what most banks are paying after DIRT is deducted

i wouldnt buy the s+p today however , its pricey , would be better in the best possible savings account for a year to see what happens

How do you get acces to vangard as an Irish investor?

Evergreen

FURET wrote: »

Good point. I get paid in UAE dirhams, a dollar-pegged currency, and am wondering whether to establish my base cuurency for my Saxo account in euros or dollars.

• If I go with dollars, I will get a stable exchange rate for as long as I am paid in UAE dirhams
• If I go with euros (which might be a good idea if I move back to Europe), if the value of the dollar falls relative to the euro, my investments won't suffer very much.

Any advice?

I have set-up my Saxo account with Euro as the base currency and USD as a sub account. The I split my fund between the two accounts allowing me to trade in both currencies without having to worry about currency commissions. You can transfer funds at any time between the two accounts and pay the spot rate plus a Saxo commission.

I'm very happy with the way it works

arrowloopboy

Berkshire returns around 20% per year ,since 69 I think ,that would be nice and passive in my book,:).

Thronegames

Thanks I'll look into that. Expensive stock I believe,,,,nominal price to buy one I mean! I'll have a look but what are Buffet's key holdings that underlie the returns?

arrowloopboy

Thronegames wrote: »

Thanks I'll look into that. Expensive stock I believe,,,,nominal price to buy one I mean! I'll have a look but what are Buffet's key holdings that underlie the returns?

Expensive yes ,but you can but the B ones,which are worth a fraction of the As,and I've no idea what Berkshires main holdings are,nor do I care,i'm backing the man not the holdings,the stats are all I really look at.

AngleseaStBull

Hup Ya Boya wrote: »

Hi all

Most of you are probably aware of his latest shareholder letter, in which he advises to dump your cash into a low cost S&P fund, is this wise advice, especially with the markets at all time highs?

The S&P500 has doubled since 2009, it has averaged 10% per year since the 1930's. It always comes back stronger than it falls. It represents American capitalism, it has a positive growth bias.

nagirrac

AngleseaStBull wrote: »

The S&P500 has doubled since 2009, it has averaged 10% per year since the 1930's. It always comes back stronger than it falls. It represents American capitalism, it has a positive growth bias.

The S&P dropped more than half from 2007 to early 2009 though, so those that hung in there through that downturn are back to even. I am not questioning index funds or buy and hold, the question though is now a good time to put your money in an index fund. I don't think Buffet, who has always being driven by value, would put money in at current levels. Nobody can time the market, and it can stay irrational for a long time, but imo we are now as frothy as we were in 2000 and 2007 (S&P, not Nasdaq compared to 2000), where any significant negative news could send things tumbling, like for example the recovery in the US is more hype than substance. The US retail data this week could be such a moment if it disappoints. It is hard to believe consumers will drive growth in the US considering by and large low paying jobs are replacing high paying jobs that were lost.

The other reason to be worried here imo is that volumes have dropped off and what volume there is has been driven by stock buybacks. There is only one reason why companies indulge in such across the board huge buybacks as we have seen on the past year, and that is to maintain or boost their EPS when there is zero top line growth. Something like 80% of S&P 500 companies' cash has gone to dividends and buybacks in the past year, an unsustainable number if growth does not pick up.

AngleseaStBull

nagirrac wrote: »

The S&P dropped more than half from 2007 to early 2009 though, so those that hung in there through that downturn are back to even. I am not questioning index funds or buy and hold, the question though is now a good time to put your money in an index fund. I don't think Buffet, who has always being driven by value, would put money in at current levels. Nobody can time the market, and it can stay irrational for a long time, but imo we are now as frothy as we were in 2000 and 2007 (S&P, not Nasdaq compared to 2000), where any significant negative news could send things tumbling, like for example the recovery in the US is more hype than substance. The US retail data this week could be such a moment if it disappoints. It is hard to believe consumers will drive growth in the US considering by and large low paying jobs are replacing high paying jobs that were lost.

The other reason to be worried here imo is that volumes have dropped off and what volume there is has been driven by stock buybacks. There is only one reason why companies indulge in such across the board huge buybacks as we have seen on the past year, and that is to maintain or boost their EPS when there is zero top line growth. Something like 80% of S&P 500 companies' cash has gone to dividends and buybacks in the past year, an unsustainable number if growth does not pick up.

If you invest into an index fund, you are investing in the companies that are in it now. The come and go, it doesn't matter who's in it. Never try "Time the market" it doesn't work and takes up too much time. If you're investing for yourself, then it doesn't matter when you invest. Buffett recommends market funds. What made the big difference in Buffett's career was the purchase of a little insurance company early in his investing days and that company grew to be Geico.
Statistically passive investing (ETFs and index funds) outperform active investing (hedge funds) especially when fees are taken account. I hope that helps.

nagirrac

AngleseaStBull wrote: »

Statistically passive investing (ETFs and index funds) outperform active investing (hedge funds) especially when fees are taken account. I hope that helps.

It doesn't really. The key if you are an individual investor is to avoid the major downturns in the stock market by being diversified and hedging when appropriate. You can make a lot of money on downturns and plough that back into the stock market. Back tested results to 1970 say you can achieve 15% average returns with lower volatility by switching to bonds / cash whenever long treasuries return have exceeded stocks for 3 months. Doesn't always work but you never miss a big upchannel before getting forced back in to stocks anyway. Volatility can only go up from here. Kept me out in 2008/9 and 2011 but my time may be running out:).

AngleseaStBull

nagirrac wrote: »

It doesn't really. The key if you are an individual investor is to avoid the major downturns in the stock market by being diversified and hedging when appropriate. You can make a lot of money on downturns and plough that back into the stock market. Back tested results to 1970 say you can achieve 15% average returns with lower volatility by switching to bonds / cash whenever long treasuries return have exceeded stocks for 3 months. Doesn't always work but you never miss a big upchannel before getting forced back in to stocks anyway. Volatility can only go up from here. Kept me out in 2008/9 and 2011 but my time may be running out:).

Yep, diversification is the only free lunch in investing. :-) Of course you're goal is to avoid major downturns, that goes without saying. Unfortunately, following a plan that would have worked in the past isn't going to always work in the future. Market volatility isn't as pronounced as much as the media make out. Over the long run, markets go up, they're designed to. I have a very passive approach. I buy into solid indices and companies and look at my portfolio every 6 months. I do mess around with other methods with smaller amounts of money, but in general I just rely on the global stock markets to do what they're designed to do.
That's an interesting approach you have though. I like it.

nagirrac

We may have had our black swan event today, although as yet the US market is only down moderately. Eric Cantor was just defeated in the Republican primary by a TP candidate, something that we may see repeated in several states in the coming weeks. Cantor is a huge scalp for the TP, and this will have serious repercussions within the Republican party, forcing them to either dump the TP (effectively creating a third party), or moving towards the TP agenda and effectively away from compromising with Democrats. Gridlock in other words which really roiled the markets in 2012.

This could create a highly unstable political landscape in Washington which the market hates. Lloyd Blankfein, CEO of Goldman Sachs, was on CNBC this morning saying this was bad, bad, and very bad.

lucky john

Interesting. The US is going far right and threatens to stall politics there. Europe is going far left and threatens to stall politics here.

lucky john

Interesting. The US is going far right and threatens to stall politics there. Europe is going far left and threatens to stall politics here.

nagirrac

France and the UK did not move to the left, the opposite actually.

betonit

a lot of talk of a correction over the last few months... how much of a correction are we looking at within what % range

nagirrac

betonit wrote: »

a lot of talk of a correction over the last few months... how much of a correction are we looking at within what % range

I don't think anyone expects a crash. We have gone a long time without a correction, so the longer that goes imo, the more likely a correction even on moderately bad news or a smallish black swan event. The last two times QE was ended in the US there were moderate pullbacks, no reason why this should be different as it reduces liquidity at a time when market volumes are low already.

I think the thing most fear, including and maybe mostly corporates, is that the Fed will be ending their program just as we enter another even mild recession. Based on the normal business cycle a recession is due in 2015/16.

My own prediction for what it's worth is a 8-10% correction between now and September, followed by market recovery into early 2015, and SHTF time when a recession becomes apparent early in 2015.

Recondite49

nagirrac wrote: »

I don't think anyone expects a crash. We have gone a long time without a correction, so the longer that goes imo, the more likely a correction even on moderately bad news or a smallish black swan event. The last two times QE was ended in the US there were moderate pullbacks, no reason why this should be different as it reduces liquidity at a time when market volumes are low already.

I think the thing most fear, including and maybe mostly corporates, is that the Fed will be ending their program just as we enter another even mild recession. Based on the normal business cycle a recession is due in 2015/16.

My own prediction for what it's worth is a 8-10% correction between now and September, followed by market recovery into early 2015, and SHTF time when a recession becomes apparent early in 2015.

Just been chatting with a friend who's a Hedge Fund Manager (who very generously lets me read his electronic copies of Wall Street Journal too!) and he agrees with you nagirrac - still at least we'll have a rough idea of when to buy into the index fund, the overall trend is upward and that's really what matters. Just a question of time.

Do you think it would be best to mitigate the risk by investing in an index fund like VEU ? I'm currently playing the market with a stock simulator (so much easier than real money!) and was advised to do this, although I doubt it'll do much good if we're due another recession.

nagirrac

Recondite49 wrote: »

Do you think it would be best to mitigate the risk by investing in an index fund like VEU ? I'm currently playing the market with a stock simulator (so much easier than real money!) and was advised to do this, although I doubt it'll do much good if we're due another recession.

International diversification makes sense, and VEU is one of the best ETFs out there as it provides exposure to all significant regions and countries outside the US. One caveat is that by owning a large cap US fund, such as VOO, you are getting international exposure anyway as most large cap US companies have significant revenue outside the US.

While VEU may mitigate risk somewhat, the problem is most international markets have a high correlation to the US in times of higher volatility / market declines. For example, in the late summer 2011 decline the US indices dropped on average 16%, while VEU declined by 24%. In general, international markets seem more volatile than US markets, especially emerging markets, but that of course could change in the future.

Bonds are generally the best assets for diversification, as they are the least correlated with equities (except for high yield corporate bonds, which are strongly correlated with equities). The risks right now are Iraq, should the conflict intensify (although I think we can be sure if oil supply is threatened swift bombing will follow), and the much larger risk of Q2 in the US being weaker than projected. There is growing unease that the growth projections for the second half of 3.5 to 4% are pie in the sky.

Recondite49

nagirrac wrote: »

International diversification makes sense, and VEU is one of the best ETFs out there as it provides exposure to all significant regions and countries outside the US. One caveat is that by owning a large cap US fund, such as VOO, you are getting international exposure anyway as most large cap US companies have significant revenue outside the US.

While VEU may mitigate risk somewhat, the problem is most international markets have a high correlation to the US in times of higher volatility / market declines. For example, in the late summer 2011 decline the US indices dropped on average 16%, while VEU declined by 24%. In general, international markets seem more volatile than US markets, especially emerging markets, but that of course could change in the future.

Bonds are generally the best assets for diversification, as they are the least correlated with equities (except for high yield corporate bonds, which are strongly correlated with equities). The risks right now are Iraq, should the conflict intensify (although I think we can be sure if oil supply is threatened swift bombing will follow), and the much larger risk of Q2 in the US being weaker than projected. There is growing unease that the growth projections for the second half of 3.5 to 4% are pie in the sky.

Hi nagirrac,

Thanks so much for responding. I was discussing what you said with my friend who said he agreed and emphasised the point that any revenue stream outside the US will be denominated in the respective country's own currency which increases your exposure further.

The e-mails I receive from Investopedia regularly tout investing in ETF's representing BRIC countries but from looking at the past progress of funds like BKF I was made very uneasy.

When it comes to bonds do you think it'd be best to buy them directly e.g Gilts or perhaps another ETF which invests in them directly? I did see Vanguard's Long Term Corporate Bond ETF VCLT but was worried for exactly the reasons you describe - that their success was tied to those self same corporations making a profit. Also as you can see from the website it woefully underperforms the S&P 500.

I do see though that Vanguard also do long term government/treasury bond ETFs as well as mortgage backed ones - I suppose at least with Treasury bonds you've the consolation of knowing they'll be honoured as they're underwritten by the people with the licence to print more money?

nagirrac

Recondite49 wrote: »

When it comes to bonds do you think it'd be best to buy them directly e.g Gilts or perhaps another ETF which invests in them directly? I did see Vanguard's Long Term Corporate Bond ETF VCLT but was worried for exactly the reasons you describe - that their success was tied to those self same corporations making a profit. Also as you can see from the website it woefully underperforms the S&P 500.

Bonds always underperform equities in the long run, by a factor of roughly 2X. However, there are periods where bonds do better, generally when the stock market is bearish, such as 2000 - 2002. YTD 2014 bonds are up roughly 2X equities which is a bit of a concern given that interest rates are projected to increase (if you believe the Fed), and rising interest rates or even the anticipation of higher interest rates should drive down the price of bonds.

VCLT is a good product, corporate debt of large multinationals. Things would need to get very bad, such as 2008, for a serious threat to this type of asset. What is at risk in a stock market decline is high yield products like JNK, as by definition high yield is associated with companies with riskier fundamentals.

Tomorrow will be interesting with the Fed due for their monthly chat. Inflation is trending up to +2% in the US in April/May and unemployment coming down to historic norms, which is the Fed's target, so will be interesting if they maintain their dovish stance. The doomsday scenario for the US economy is inflation with no growth, aka stagflation. A lot of the data suggests this, rising prices for fuel and food and flat or declining wages.

FURET

Has anyone on this thread invested in an S&P 500 ETF bought off the Amsterdam exchange?

If so, how much Capital Gains Tax did you pay on it? I know that a certain amount is deducted at source in the US, but do the Dutch authorities also deduct a percentage on whatever's left?

Recondite49

FURET wrote: »

Has anyone on this thread invested in an S&P 500 ETF bought off the Amsterdam exchange?

If so, how much Capital Gains Tax did you pay on it? I know that a certain amount is deducted at source in the US, but do the Dutch authorities also deduct a percentage on whatever's left?

I can see that iShares have listed an S&P 500 ETF on the Amsterdam exchange but can't find the name, perhaps you could enlighten me?

FURET

Recondite49 wrote: »

I can see that iShares have listed an S&P 500 ETF on the Amsterdam exchange but can't find the name, perhaps you could enlighten me?

I'm still at the research phase I'm afraid. My Saxo account went live today but I have yet to deposit the 20k dollars required for web access. I'm in no hurry as I want to research first. My account is denominated in euros so I will probably buy Vanguard or iShare ETFs from the Amsterdam exchange. Any reason why you would opt for iShares rather than VUSA?

Recondite49

FURET wrote: »

I'm still at the research phase I'm afraid. My Saxo account went live today but I have yet to deposit the 20k dollars required for web access. I'm in no hurry as I want to research first. My account is denominated in euros so I will probably buy Vanguard or iShare ETFs from the Amsterdam exchange. Any reason why you would opt for iShares rather than VUSA?

Thanks Furet,

Saxo looks impressive from reading the literature and from what I can see it's more convenient in the sense you have a Euro account but can also change that into dollars if you want to play the US stock market.

The opening balance you mentioned is what put me off as I only have a couple of grand saved up - I do think you have the right idea though, I'm planning to invest in the S&P 500, the SPDR Gold ETF (GLD) and the Vanguard Total International Bond fund index (BNDX) - what do you reckon? Hopefully that'll help hedge bets.

As a previous poster pointed out, there's actually a good deal of international exposure through investing in the S&P 500 as many of these companies have foreign branches and of course their bank accounts will be denominated in other currencies.

FURET

Recondite49 wrote: »

Thanks Furet,

Saxo looks impressive from reading the literature and from what I can see it's more convenient in the sense you have a Euro account but can also change that into dollars if you want to play the US stock market.

Well, I am only just starting out with investments. I will probably buy the S&P 500 ETF (VUSA) on the Amsterdam exchange with euros. The reason I'm thinking to do it this way is because if you buy off a US exchange, estate taxes will take approx 40% of your investment value if you die, leaving a much smaller inheritance for whoever is left behind.

The opening balance you mentioned is what put me off as I only have a couple of grand saved up - I do think you have the right idea though, I'm planning to invest in the S&P 500, the SPDR Gold ETF (GLD) and the Vanguard Total International Bond fund index (BNDX) - what do you reckon? Hopefully that'll help hedge bets.

The opening balance is 20k dollars for me because i have a joint account with my wife. Otherwise I believe it is only 5k or 10k, depending on your location. I plan to invest in the SP 500 ETF (35% of my portfolio), a whole-of world-excluding USA ETF (also 35%), and a short-term first world gov bond ETF (30%). I plan to keep my bond percentage relatively closely aligned with my age, so when I am 50, something like 45% will be bonds.

I am not a believer in gold, but I may look into metals in the future.

My guide book is "Millionaire Teacher" by Andrew Hallam, and also a book called "The Intelligent Investor".

I also will try to keep quite a bit in cash, in euros and US dollars.

Recondite49

FURET wrote: »

Well, I am only just starting out with investments. I will probably buy the S&P 500 ETF (VUSA) on the Amsterdam exchange with euros. The reason I'm thinking to do it this way is because if you buy off a US exchange, estate taxes will take approx 40% of your investment value if you die, leaving a much smaller inheritance for whoever is left behind.

The opening balance is 20k dollars for me because i have a joint account with my wife. Otherwise I believe it is only 5k or 10k, depending on your location. I plan to invest in the SP 500 ETF (35% of my portfolio), a whole-of world-excluding USA ETF (also 35%), and a short-term first world gov bond ETF (30%). I plan to keep my bond percentage relatively closely aligned with my age, so when I am 50, something like 45% will be bonds.

I am not a believer in gold, but I may look into metals in the future.

My guide book is "Millionaire Teacher" by Andrew Hallam, and also a book called "The Intelligent Investor".

I also will try to keep quite a bit in cash, in euros and US dollars.

Hi Furet,

Sorry for not responding sooner to your message but I wanted to read the book you recommended "Millionaire Teacher" - many thanks for pointing it out, I think the advice is excellent and it corroborates heavily with what I read in "A Random Walk down Wall Street".

I think trading on the Amsterdam exchange is a good one, as presumably you'd avoid paying Irish/UK Stamp duty on purchases if you did?

Your investment plan tallies nicely with what Hallam recommends : a broad based index fund of the S&P 500, a whole world fund (have you taken a look at VEU? - seems to fit the bill nicely) and a certain allocation of short term government bonds.

You seem to have in mind what Hallam recommends of weighting the level of bonds in accordance with your age but I was a little surprised by the method he suggested as if you have to continually sell shares in your ETF/All world bond index to rebalance your portfolio, won't you have to spend a fortune in fees?

I think I prefer the idea of his second suggestion which is to put aside some money each month and then you can just make a purchase accordingly once every quarter or similar to weight your portfolio as you'd like it.

Did you see Vanguard actually do offer 'Lifestyle Strategy' ETF's of various types which are weighted e.g all equity, 20% bonds, 30% bonds and so on? This might work out cheaper but also would take all the fun out of investing..!

The book also mentions that $1 invested in gold in 1801 would have been worth $73 in 2010. The same amount of money invested in an index fund would be worth over $10 million - so it seems precious metals aren't the way forward.

I think that people see gold as a safe bet in that it retains its value but given that even short term goverment bonds with an average return of 2.1% p.a could have beaten that lump of metal, I think perhaps it's best to cast it off, many thanks for the tip!

Best of luck with your investment plan and thanks again.

DarkDusk

Recondite49 wrote: »

The book also mentions that $1 invested in gold in 1801 would have been worth $73 in 2010. The same amount of money invested in an index fund would be worth over $10 million - so it seems precious metals aren't the way forward.

To use gold in any comparison before 1971 when Nixon severed all ties to gold would be completely ridiculous. The price of gold was set by the government! Was the price of stocks and bonds set by the government? Interesting how the author neglected to compare gold's performance to stocks over the last decade, gold blows away the paper in any fair comparison. Stocks have been going sideways for the last 15 years!

I'd recommend that you educate yourself about the basics of money before you try to even contemplate investing it.

Recondite49

DarkDusk wrote: »

To use gold in any comparison before 1971 when Nixon severed all ties to gold would be completely ridiculous. The price of gold was set by the government! Was the price of stocks and bonds set by the government? Interesting how the author neglected to compare gold's performance to stocks over the last decade, gold blows away the paper in any fair comparison. Stocks have been going sideways for the last 15 years!

I'd recommend that you educate yourself about the basics of money before you try to even contemplate investing it.

Hi DarkDusk,

Thanks for your message.

I think the lesson to take away is that stocks will outperform other methods of investment provided you have a sufficiently broad index fund and enough time.

Gold may show some short term gains but overall I think it's more volatile.

I don't usually post Wiki facts but was able to verify the figures mentioned on the Gold as an Investment page. Since the Nixon shock the price of gold has increased a very impressive 929% but this pales in comparison to the DIJA which went up an impressive 1,259%.

I also had a peek on Google at the S&P 500 -

Value on June 13th 1975 : $90.32
Value today : $1,967.89

If I'm not mistaken this would give a return of a little over 2,165%. To put things into perspective $1,000 dollars invested on that day would be worth over $21,650 today.

$1,000 worth of gold would be worth just $9,290.

If you could go back then would you buy a gold bar or common stocks?

It's true an investment in an index fund tracking the price of gold may earn you more money in the short term such as over the past ten years but there's no contest when it comes to investments - stocks win over time.

Recondite49

DarkDusk wrote: »

To use gold in any comparison before 1971 when Nixon severed all ties to gold would be completely ridiculous. The price of gold was set by the government! Was the price of stocks and bonds set by the government? Interesting how the author neglected to compare gold's performance to stocks over the last decade, gold blows away the paper in any fair comparison. Stocks have been going sideways for the last 15 years!

I'd recommend that you educate yourself about the basics of money before you try to even contemplate investing it.

Just picked up on the rather snide comment about educating myself about the basics of money - you'd do well to follow your own advice as you can see from the figures I've outlined above, the stock market beats precious metals hands down. Would you rather have $21,000 or $9,000?

Recondite49

For those of you who like me prefer graphs to stats, I managed to find this in the vaults:



Source : http://www.ritholtz.com/blog/2013/06/sbg/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+TheBigPicture+(The+Big+Picture)

Read is S&P500, pink is gold. I certainly know where I'm putting my money...