UnThreaded | Threaded | Whole Thread (4) | Ignore Thread Prev | Next
Author: Rayvt Big gold star, 5000 posts Top Favorite Fools Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 75776  
Subject: Re: Wisdom of S&P index funds? Date: 6/20/2008 7:29 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 0
Unless I'm doing something completely wrong, it looks like the value would be DOWN $800, or -5.8% !

Correct.
Ignoring dividends, May 2000 to May 2008, S&P500 (SPX) had a CAGR of -.6%. With a stdev of 13.5%. Not only a loss, but a loss along with high risk. Bummer.
However, with dividends the CAGR was 1.23%. Still not good, but at least not a loss.



It makes me question not only index investing (which I really *want* to work for me), but investing in general. I'd have to time my retirement to be during a peak or basically I'd be screwed.

What am I missing here?

1) Diversification.
2) And/or a more active strategy.
3) What you are also missing is a view of the long(er) term.
For the period Jan 1983 to May 2008, SPX (with dividends) had CAGR of 12.4% with stdev of 14.5%. Without dividends, CAGR was 9.45%.

Tactics:
Using Faber's 10month SMA timing strategy, for SPX May 2000 to May 2008 (including dividends and assuming 3% APY on cash) the CAGR was 7.27% with a stdev of 7.34%. That's 6 times the return at half the risk (if you view that stdev is a proxy for risk).

Diversification. And tactics:
Get ahold of Faber's paper. http://ssrn.com/abstract=962461

Also look at the righthand column of page 2 of this article.
http://www.jennisondryden.com/view/upload?docURL=/WDocs/3862...

More details: http://www.jennisondryden.com/view/upload?docURL=/WDocs/45FB...
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Print the post  
UnThreaded | Threaded | Whole Thread (4) | Ignore Thread Prev | Next

Announcements

The Retire Early Home Page
Discussion on accelerating retirement day.
Pencils of Promise - Back to School Drive
"Pencils of Promise works with communities across the globe to build schools and create programs that provide education opportunities for children."
Managing Your Wealth
Our own TMFHockeypop from Rule Your Retirement fame on the TV show Managing Your Wealth.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Post of the Day:
Value Hounds

Clorox Isn't Cleaning Up
What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
Community Home
Speak Your Mind, Start Your Blog, Rate Your Stocks

Community Team Fools - who are those TMF's?
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and "#1 Media Company to Work For" (BusinessInsider 2011)! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.
Advertisement