chroot said:
Who's to say how retirement funds should be "played with?" Should I defer all the decisions to some professional money manager who has his hands tied in bear markets, simply because it's a retirement account? Don't be silly.
I'm not even suggesting you use a managed mutual fund. 30 years in an S&P index fund is virtually no risk and will set you up for retirement. The money shouldn't be "played with" at all. That is what the conventional wisdom says.
Almost every sign you could possibly want has already been delivered.
And yet a bear market hasn't happened yet. Why?
The sub-prime fiasco has another year or 18 months of teeth.
18 months of getting worse or 18 months before it recovers? 18 months of continually getting worse would put us into a new Great Depression.
I realize not all the worst after-effects have been seen (some bad housing sales data came out today, in fact), but with interest rates dropping, I don't see why it wouldn't start back up soon. But with all those unsold houses on the market, yeah, I can see it taking 18 months for prices to start back up as the glut is cleared.
We've only hit the first wave (out of four) of ARM resets...
Two things about that:
- one, with interest rates going back down, that won't be as much of a hit and
- two, the forclosures are more of an effect of the slowing market than of banks giving money to people they shouldn't have. With homes on the market longer and people overconfidently buying and closing before their last home sells, they are forced to try to handle two mortgages at once. So I don't see a 1 point increase in peoples' interest rates having a big effect.
You're only looking at share price, not market capitalization. The entire stock market was worth $11 trillion at the beginning of the bull market in 2004; it's worth $17 trillion today. For those who are counting, that's a 55% increase in total value over a little under four years.
You're measuring from the bottom of the bear, I'm measuring from the top of the previous bull. From the bottom of the bear market, share prices are up 90%. I picked an earlier date because measuring inside a single cycle doesn't tell you anything about long term trends. Over its lifespan, the market has averaged something like 12% a year before inflation. The market in 2001 may have still been overvalued, but if the next peak (and resulting bear) comes from the same trend, we're not even close - the market could be double what it is today. That's the point: the long bear and slow recovery has meant that the market has a long way to go before being overvalued and in need of a correction.
[edit] Actually, I was measuring from mid-2001 because that's as far back as Google's graph goes and people sometimes see there being two separate bears there. For the S&P, though, we just now equalling the previous high from the 2000 internet boom (it was a lot worse than for the Dow). Seven years with a net gain of ZERO in the S&P,
before inflation. That's a very weak market with a long way to rise to get back on track with long term trends.
