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Am I alone in wondering if the advice about broad index funds is no longer good? We're still below the s&p inflation adjusted high from ~2000 -- almost 14 year

Am I alone in wondering if the advice about broad index funds is no longer good? We're still below the s&p inflation adjusted high from ~2000 -- almost 14 years later. When will the gains finally arrive? I worry that there is some systemic problem in our economy that has leaders playing whack-a-crisis every five or ten years that erases years of gains. I've read John Bogle and I want to believe. But a few years ago I took some money out of index funds and placed it in a rental property and so far I've seen very predicable returns with no loss in principle, and it makes me wonder if I should keep bothering with index funds at all.

JoshTriplett 13y ago
Rentals are much more risky, as the housing crash demonstrated. If you really want to benefit from that market, buy a REIT unless you actually enjoy the work of being a landlord. The gains are here now, and I'm more concerned about a bubble personally. Vanguard's total stock market fund has year-to-date growth of ~17%, and their more-stable lower-growth "balanced" fund with bonds included has year-to-date growth of ~8.75%. Both of those are better than the usual estimate of 7% annual growth for retirement funds (a conservative 3% for inflation and 4% for income).
cperciva 13y ago
We're still below the s&p inflation adjusted high from ~2000 -- almost 14 years later. Only if you're looking at the price index. The total return index -- including dividend payouts -- peaked at 2108 in September 2000, and is now at 3027. After inflation that's a gain of 6%, for a real return of slightly under 0.5% per year... but hey, at least it's positive.
- jayp 13y ago
  It's barely positive if you compare the two points. However, if you have investing regularly via your 401k (etc), you also bought in during the low periods. So, your gain would be much more than just minimal positive.
a8da6b0c91d 13y ago
I also question the advice to max out 401K and IRA contributions. Recent events in Cyprus, Argentina, and some other places have made it quite clear that such money is far from safe. If there's a fiscal crisis and the political class is backed into a corner, they will seize your money. They'll do some sleight of hand to claim you're getting an equal value retirement annuity, but that will be a lie. More generally it seems like all pop financial advice is based on the premise that the next 40 years will look much like the last 40 years. Historically that's been a bad bet. For example, you never hear about hedging for a deflationary crash, because that's unthinkable given recent history.
- eatmyshorts 13y ago
  Did either Cyprus or Argentina seize any defined contribution pension funds? I was under the understanding that only defined benefit pension funds have been raided. I can't think of a single exception. 401K and IRA are defined contribution pensions. Repricing financial instruments can affect those greatly, but I would argue that those are accurate reflections of the value of the investments.
sliverstorm 13y ago
You should always compare your rates of return on different types of investments. The advice about index funds is (to my knowledge) primarily rooted in the fact that index funds typically outperform mutual funds, with lower management fees to boot. Not a claim that index funds are the strongest investment. Also worth noting- can rental properties ever be included in blanket investing advice? Investing directly in property requires either a group of investors or considerable capitol- both, really. Stocks and such are popular in sweeping advice because anybody with two nickels to rub together can acquire stocks.

JoshTriplett 13y ago

Rentals are much more risky, as the housing crash demonstrated. If you really want to benefit from that market, buy a REIT unless you actually enjoy the work of being a landlord. The gains are here now, and I'm more concerned about a bubble personally. Vanguard's total stock market fund has year-to-date growth of ~17%, and their more-stable lower-growth "balanced" fund with bonds included has year-to-date growth of ~8.75%. Both of those are better than the usual estimate of 7% annual growth for retirement funds (a conservative 3% for inflation and 4% for income).

cperciva 13y ago

We're still below the s&p inflation adjusted high from ~2000 -- almost 14 years later. Only if you're looking at the price index. The total return index -- including dividend payouts -- peaked at 2108 in September 2000, and is now at 3027. After inflation that's a gain of 6%, for a real return of slightly under 0.5% per year... but hey, at least it's positive.

jayp 13y ago
It's barely positive if you compare the two points. However, if you have investing regularly via your 401k (etc), you also bought in during the low periods. So, your gain would be much more than just minimal positive.

a8da6b0c91d 13y ago

I also question the advice to max out 401K and IRA contributions. Recent events in Cyprus, Argentina, and some other places have made it quite clear that such money is far from safe. If there's a fiscal crisis and the political class is backed into a corner, they will seize your money. They'll do some sleight of hand to claim you're getting an equal value retirement annuity, but that will be a lie. More generally it seems like all pop financial advice is based on the premise that the next 40 years will look much like the last 40 years. Historically that's been a bad bet. For example, you never hear about hedging for a deflationary crash, because that's unthinkable given recent history.

eatmyshorts 13y ago
Did either Cyprus or Argentina seize any defined contribution pension funds? I was under the understanding that only defined benefit pension funds have been raided. I can't think of a single exception. 401K and IRA are defined contribution pensions. Repricing financial instruments can affect those greatly, but I would argue that those are accurate reflections of the value of the investments.

sliverstorm 13y ago

You should always compare your rates of return on different types of investments. The advice about index funds is (to my knowledge) primarily rooted in the fact that index funds typically outperform mutual funds, with lower management fees to boot. Not a claim that index funds are the strongest investment. Also worth noting- can rental properties ever be included in blanket investing advice? Investing directly in property requires either a group of investors or considerable capitol- both, really. Stocks and such are popular in sweeping advice because anybody with two nickels to rub together can acquire stocks.