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Asset allocation in a US stock market bubble
- Thread starter Flybytheseat
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Isn't that the issue with most people's investments now, over exposure to US markets. Although they got a bit of a reprieve yesterday when trump basically backtracked yet again on tariffs
BIG-notorious
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Just in the context of the current market volatility, I ran the numbers on Berkshire Hathaway and Nasdaq 100. Assuming that you had two separate funds, one where you invested a dollar a day (over 10,000 days and 40 years for each) and the other where you kept your dollar in the bank until the price dropped 1% from that days open:
The Nasdaq 100 is crazy volatile, so if you're still down 10% waiting for a 1% drop on that index I'm guessing there's no index or share price anywhere where trying to time the market works in practice rather than theory. I don't plan to spend any more time checking to make sure!
This illustrates the irrelevance of volatility to the long-term investor, and that dollar cost averaging & long term holding is basically the king of investment strategies.
(I do realise I'm about to get jumped on by the bubble brigade telling me how US equity is doomed along with all things US-American and I'll die in poverty as a result of my utterly naive interpretation of the data).
- About 90% of the time the price subsequently dropped by at least 1%
- For BH if you just dollar cost averaged every trading day you'd have €2.07 million today, whereas if you held on to your cash until it dropped by 1% you'd only (hah!) have €1.724 million
- For Nasdaq 100, DCA regardless gives you €323k, while holding on for a 1% drop gives you €288k.
The Nasdaq 100 is crazy volatile, so if you're still down 10% waiting for a 1% drop on that index I'm guessing there's no index or share price anywhere where trying to time the market works in practice rather than theory. I don't plan to spend any more time checking to make sure!
This illustrates the irrelevance of volatility to the long-term investor, and that dollar cost averaging & long term holding is basically the king of investment strategies.
(I do realise I'm about to get jumped on by the bubble brigade telling me how US equity is doomed along with all things US-American and I'll die in poverty as a result of my utterly naive interpretation of the data).
I know you are in love with the nasdaq and weren't around at the millenium and dot com bust. Just to clarify how horrendous the floor can fall out from underneath it , in March 2000 the nasdaq was trading around 4600 points however by oct 2002 it fell to 900 points, it traded around the 1000 to 2000 points level then for the next decade. The dot com bust wiped out alot of people, its largely forgotten about now because it was later superceded by the financial crash of 2008 which affected most people whereas dot com was largely restricted to the tech guys. So $100,000 nasdaq portfolio in 2002 falls all the way back to around $20,000 and stays there for a decade. Thats not volatility that is wealth destruction. The nasdaq and even the whole US market is proving yet again to be too narrow a base to have all your investments.
BIG-notorious
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And i know you think actual facts and numbers which don't support your conclusions are irrelevant which is why i generally ignore your comments.
You've cherry picked your favourite data points yet again, but the data for the last 4 decades is out there for anyone to download and analyse.
You also omit to mention that the 200k nasdaq portfolio would have been 20k only 5 years previous. So unless someone went all in at the peak (aka was dumb) actual losses would be far lower than you suggest.
yes thats a relevant point , it had the rapid appreciation during the go go late 90s when tech was all the rage, just like ahem the last 5 years since covid. So this time probably wont have such a catastrophic fall but if it falls back to the 10,000 level where it was 5 years ago then its worth a punt. I believe we are at another peak and that the tech baton is going to be passed to other countries and "Old Europe" maybe where some of the action goes with the massive military spending in the offing.
Timing the market alert!
not really because the nasdaq is not "the market" even the S&P is also not the market, the nasdaq is just a sector of the market.Timing the market alert!
No its not hair splitting, its actually an important point, The US markets and the nasdaq are not "the market", yes they have now become a very high proportion of the msci global index but that changes over time and has done before, the 1970s is one period when the US gave up share to the rising economic powers like Japan and Germany. Also between 2002 and 2007 the US proportion of msci went from 54% to 41% mostly as a result of dot com collapse.Hair splitting alert!
>>I put 5% of my pension into emerging markets on the 11 Nov 24 and its up by 1.61%. Not as much as global equities though during the same period as they are up by 4.33%.
>>I unfortunately missed the big rise in emerging markets at the end of September when China announced stimulus measures. If I'd moved earlier in Sep 24 I'd be up 12.04% which is similar to global equities for that period.
>>I unfortunately missed the big rise in emerging markets at the end of September when China announced stimulus measures. If I'd moved earlier in Sep 24 I'd be up 12.04% which is similar to global equities for that period.
@Flybytheseat
Would you mind sharing the name of the Pension Funds you chose, please? Were they Zurich PRSA by any chance? It's been hard to find a PRSA Zurich fund that is not super US/EU and tech-centred, spoke with a few advisors but no luck. Would be awesome if you or some others had a few recommendations please. Thanks so much.
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galway_blow_in
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I can see how someone might be a little nervous at the moment, looks like Wall St realized this week that there is a mad man at the wheel
Uncertainty reigns so it's sell sell sell for now
Uncertainty reigns so it's sell sell sell for now
S&P closed in correction territory yesterday and looks to be opening another 2.5% down or so today.
All short term noise for sure but looks like another lurch down from here.
Even if we got to 20% or more down from previous peak, markets would only be back where they were in early 2024
at current levels they're only just back to where they were in June 24
One potentially strategy to increase allocation to equities could be to do some pound cost averaging over the next 6 to 10 months
Of course goes without saying timing the markets is a mugs game
The bond markets put an end to the truss madness, might take a threat of a full blown equity market crash to stop trump in his tracks or does he even care
All short term noise for sure but looks like another lurch down from here.
Even if we got to 20% or more down from previous peak, markets would only be back where they were in early 2024
at current levels they're only just back to where they were in June 24
One potentially strategy to increase allocation to equities could be to do some pound cost averaging over the next 6 to 10 months
Of course goes without saying timing the markets is a mugs game
The bond markets put an end to the truss madness, might take a threat of a full blown equity market crash to stop trump in his tracks or does he even care
It might even be part of the plan....
I'd be more sympathetic to the dollar cost averaging and long term arguments generally but can't be denied that this is not like an ordinary "correction" under Biden or Obama. Trump is set on doing huge damage and he hasn't even got to the Fed and sovereign debt yet. It's 4 years of unchartered waters and who knows after that. This time is definitely different when the guy at the top is OK with destroying his own economy, more like Chairmen Mao if you ask me
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