Are you bearish these days?
Tim Buckley, managing director of The Vanguard Group in Malvern, Pa., notes that hardly anyone is bullish these days. Stocks are down around 10% for the year, and few people expect them to rebound quickly. In fact, the current period, he pointed out, reminds Legg Mason’s star money manager Bill Miller of the Depression.
“There’s reason to be bearish,” Buckley conceded. There’s the sub-prime crisis…the soaring price of oil, along with other commodities (in the last 25 years, more commodities have been used than in the entire history of Man… the weak dollar … slowing consumer purchasing… dismal consumer confidence.
But Buckley pointed out that people’s emotions have often been misleading. Who thought the stock market would rebound so robustly after 9/11? Or that high-flying growth stocks would fall off a cliff in 2000?
Right now, in fact, Mellon Capital’s asset-allocation model foresees 10.2% total return for the stock market by the end of this year.
His point: “Chasing performance is a losing strategy. Past is not prologue.”
If you look at which investment sectors outperformed from 1980 to 2007, he went on, you can’t detect a pattern. “It’s quilt-work. Who can tell now what investments will outperform over the next five years?”
Buckley himself confessed: “I don’t know if the bulls or the bears are right.”
But won’t your investments be unusually volatile if you keep owning stocks now? Actually, the volatility of stocks these days, Buckley noted, has been what it always been.
Buckley spoke during a recent public forum in Parsippany, N.J., sponsored by Rutgers Cooperative Extension of Morris County.
His advice: “Stay balanced and diversified.”
Bonds can lower the volatility of a stock portfolio by 20%, he said. “Don’t be courageous” – in other words, limit your exposure to stocks. Consider balanced funds, like Vanguard Wellington.
Keep costs low. (What would you expect a Vanguard person to say?) And rebalance: If (for example) your stock holdings decline vis-à -vis your cash and bonds, bring everything back into line every once in a while. And think about where you keep your investments – in general, taxable investments (like bonds) belong in your tax-deferred accounts, your tax-resistant investments (like stock index funds) belong outside.
“Watch CNBC for entertainment, not for tips,” he counseled. “The people who advise you on TV are not accountable -- even if they tell you to hold onto Bear Sterns.” (That stock, which fell off a mountain recently, was vaguely recommended by TV pundit Jim Cramer.) “If a TV program has ‘Street’ in its name, it’s only entertainment.”
“Investing should not be difficult,” he went on. “And it should not be like going to a dentist.” He mentioned all-in-one funds, like the Vanguard Target Retirement funds, which give people a turnkey portfolio—a portfolio that also becomes more conservative as they grow older.
Don’t be thrown by all the choices of mutual funds you have. Schwab offers 4,000 of the 8,000. Even Vanguard offers 150. And now there are 620 to 630 exchange traded funds.
One investor with $100 million to invest put all that money into just four Vanguard funds: a money market, a bond fund, a U.S. stock fund, and an international stock fund. IS THAT RIGHT?
A new development at Vanguard: You hand over a sum of money, and indicate what income you want to receive – 3% or 5% or 7% a year. These are called “Managed Payout Funds.” But with 7%, he warned, “You can’t expect to keep your purchasing power.” You won’t have enough exposure to stocks to outperform inflation in the long run.
Someone in the audience asked: What advice would John Bogle, the founder of Vanguard, give now?
“Past is not prologue,” Buckley said.
***
Another speaker, Patricia Q. Brennan, CFP, a senior extension trainer, told the same audience that it’s normal to be nervous these days. To calm yourself, she recommended,
+ write down your worst fears
+ ask yourself how realistic they are
+ stop shopping for “wants” instead of “needs.”
+ boost your savings.
+ call your financial adviser to review your financial plan.
+ turn off CNBC, and in general “tune out the noise.”
Tim Buckley, managing director of The Vanguard Group in Malvern, Pa., notes that hardly anyone is bullish these days. Stocks are down around 10% for the year, and few people expect them to rebound quickly. In fact, the current period, he pointed out, reminds Legg Mason’s star money manager Bill Miller of the Depression.
“There’s reason to be bearish,” Buckley conceded. There’s the sub-prime crisis…the soaring price of oil, along with other commodities (in the last 25 years, more commodities have been used than in the entire history of Man… the weak dollar … slowing consumer purchasing… dismal consumer confidence.
But Buckley pointed out that people’s emotions have often been misleading. Who thought the stock market would rebound so robustly after 9/11? Or that high-flying growth stocks would fall off a cliff in 2000?
Right now, in fact, Mellon Capital’s asset-allocation model foresees 10.2% total return for the stock market by the end of this year.
His point: “Chasing performance is a losing strategy. Past is not prologue.”
If you look at which investment sectors outperformed from 1980 to 2007, he went on, you can’t detect a pattern. “It’s quilt-work. Who can tell now what investments will outperform over the next five years?”
Buckley himself confessed: “I don’t know if the bulls or the bears are right.”
But won’t your investments be unusually volatile if you keep owning stocks now? Actually, the volatility of stocks these days, Buckley noted, has been what it always been.
Buckley spoke during a recent public forum in Parsippany, N.J., sponsored by Rutgers Cooperative Extension of Morris County.
His advice: “Stay balanced and diversified.”
Bonds can lower the volatility of a stock portfolio by 20%, he said. “Don’t be courageous” – in other words, limit your exposure to stocks. Consider balanced funds, like Vanguard Wellington.
Keep costs low. (What would you expect a Vanguard person to say?) And rebalance: If (for example) your stock holdings decline vis-à -vis your cash and bonds, bring everything back into line every once in a while. And think about where you keep your investments – in general, taxable investments (like bonds) belong in your tax-deferred accounts, your tax-resistant investments (like stock index funds) belong outside.
“Watch CNBC for entertainment, not for tips,” he counseled. “The people who advise you on TV are not accountable -- even if they tell you to hold onto Bear Sterns.” (That stock, which fell off a mountain recently, was vaguely recommended by TV pundit Jim Cramer.) “If a TV program has ‘Street’ in its name, it’s only entertainment.”
“Investing should not be difficult,” he went on. “And it should not be like going to a dentist.” He mentioned all-in-one funds, like the Vanguard Target Retirement funds, which give people a turnkey portfolio—a portfolio that also becomes more conservative as they grow older.
Don’t be thrown by all the choices of mutual funds you have. Schwab offers 4,000 of the 8,000. Even Vanguard offers 150. And now there are 620 to 630 exchange traded funds.
One investor with $100 million to invest put all that money into just four Vanguard funds: a money market, a bond fund, a U.S. stock fund, and an international stock fund. IS THAT RIGHT?
A new development at Vanguard: You hand over a sum of money, and indicate what income you want to receive – 3% or 5% or 7% a year. These are called “Managed Payout Funds.” But with 7%, he warned, “You can’t expect to keep your purchasing power.” You won’t have enough exposure to stocks to outperform inflation in the long run.
Someone in the audience asked: What advice would John Bogle, the founder of Vanguard, give now?
“Past is not prologue,” Buckley said.
***
Another speaker, Patricia Q. Brennan, CFP, a senior extension trainer, told the same audience that it’s normal to be nervous these days. To calm yourself, she recommended,
+ write down your worst fears
+ ask yourself how realistic they are
+ stop shopping for “wants” instead of “needs.”
+ boost your savings.
+ call your financial adviser to review your financial plan.
+ turn off CNBC, and in general “tune out the noise.”
