Advice?

Yes, but "Past performance is not a guarantee of future returns."

Dave

years.http://quicktake.morningstar.com/FundNet/TotalReturns.aspx?Country=US...>

years.http://www.mscibarra.com/products/indices/stdindex/performance.html>

years.http://www.russell.com/Indexes/performance/calculator/calculator.asp Yes, but "Past performance is not a guarantee of future returns."

Dave

The point here is that most people with jobs depend on the economy being healthy to keep that job. Likewise, most people investing in the market are betting that the economy will do reasonably well so that the market returns are higher than what they can get from relatively risk-free investments. Being employed and invested in the market is like doubling-down on the economy.

Anoop

That's exactly the line I use when people say that historical data show that the only way to beat inflation is to be invested in stocks.

Looks like what you're saying is that whether or not one should invest in stocks boils down to the flip of a coin?

Anoop

======================================= MODERATOR'S COMMENT: Please trim the post to which you respond.

I'm not a F-P guru, and my last couple of months of posts here on your investment issue were largely dismissed (often rather rudely by honda.lioness). But as I review them now they look pretty precient and profitable to me (just 2 months showing there but as only I know, multi decades of similar experience).

Why not go with something that is demonstratably working, besides just having a good fundamental reasons to work. Just picking something that ought to work someday based on valuation can be a gamble that can take years to pay off. Or not, like how F-P'ers drove my grandparents fortune down to almost zero by hanging on to rustbelt commercial real estate and eventually nearly worthless bonds.

In the last couple months we have pointed out a fundamental case for bonds in topics like "corporate bonds are the new stocks", "Bond Funds

- Good Idea or Not", "What type bond fund to buy in current situation?" and the market has confirmed this with 30+% returns on their market price, let alone some also having around 7% yield: (this url may have to be pasted back together if newsgroup software breaks it up).

The phenomena I target is a gradual swell of interest in certain asset types. Only in it's extreme is it a creaping toward "hard nosed fundamentals" or at the other extreme "over exuberant bubbles". Usually it is a multi year migration towards raising the value of some asset type for non-obvious reasons that are slow to dawn on the street smart types - more like for macro-heuristic-economics. Currently there are reasons for those raising their risk tolerance to favor risky bonds over risky stocks. Later this may change due to the humidity in Paraguay... YMMV, but this normally doesn't require the care as now. Often can be nearly hands off, but had to get busier recently.

More detail please? Maybe a web page that explains how P/E relates to future earnings and discounted cash flow?

Even if P/E never rises above 11, you will still earn approximately 9% per annum net of taxes. This is because a dollar that you would invest, would earn 1/11 of a dollar per year, which would benefit you in form of dividends, share buybacks and reinvestments.

In fact, in the long run, if you are never allowed to sell shares, the lower P/E is, the faster you will make money.

Try to think about it for a few monutes.

Then you will understand the fallacy of people thinking (collectively) that they are richer just because average P/E is high.

If the trust gets dissolved, you may have a wait to get your assets back.

There is management fee, so long term holdings of GLD will lose value compared to physical gold. But, physical gold is also likely to have storage expenses.

Yes, if it doesn't follow its prospectus, there could be criminal prosecution.

I think bankruptcy laws give the trust holders priority to those assets.

IAU uses future contracts instead of physical gold. I don't know the proportion of physical gold that they hold. GLD is the larger trust fund giving more option call volume and variety of strike prices, so I would recommend GLD instead of IAU.

-- Ron

P/E relates to _how much you pay_ for future earnings and cash flow. It is not predictive of future earnings or cash flow. Only of how much you are paying for it.

Let me direct you to one of my favorite readings: Hussman Investments at hussmanfunds.com.

Sure, it is traded on the commodity exchanges (financial definition). That's what I meant, although it's a cop out.

Economically, a commodity is anything that is bought and sold including services.

I couldn't find any reference to anyone doing that currently.

The cost of production of gold has remained the same in terms of human wages despite improvements in technology making it a good measure of value. Most of easy gold has already been found.

Adam Smith warned against countries trying to maximize their store of gold and individual investors should also follow that advice.

Corporations are going to remain the best choice for investors for the foreseeable future. But, as we have seen, there is a need for alternative investments not as subject to the vagaries of the market.

-- Ron

So you'll only invest in the stock market when you're UNemployed? I just don't get how you're relating your personal employment to your investment strategy, other than whether you'd invest in the company where you are employed.

Elizabeth Richardson

OK, may be I need to explain myself a bit more.

First off, being employed (and not independently wealthy) means my salary, bonuses, raises, etc. dependent to a very large extent on the state of the economy.

Second, the economic indicators right now are all looking VERY bad. No one seems to have a clue how to fix things. When some fix is proposed and passed, the public later finds out that a problem has shown up somewhere else. Forecasts are not looking good. People say that things are "priced in" now, but that's what a brokerage rep told me back in March when he saw my account was all cash.

Now, if I were independently wealthy and could afford to have money invested for 20-30 years and didn't care about the returns even after that period, heck, I wouldn't mind putting money in stocks. It's like gambling in Vegas...you set a budget, head for the tables, and don't fret if everything is lost. I wouldn't bet my future livelihood on stocks at this point in time (with all the negativity in the news & blogs).

If I could see a recovery in sight, I might be tempted to invest in stocks (but even then no more than 50% of retirement assets). I don't see that, though. I know folks on here are very much against market timing. I disagree with that philosophy. I'm not trying to get rich by timing the market, rather I just want to be conservative.

Ultimately, it gets down to one's personal comfort factor. I'm very risk averse. In boom times, I don't make as much as folks willing to take on risk. I'm OK with that.

I jumped into this discussion just to let one of the posters know that I agreed with his point of view (about stocks not necessarily being a great value at this time). I don't tell others what to do, but I do tell others what I'm doing and why. If someone can convince me that I'm wrong, I'm all ears...that's why I'm here. For example, I learned about Zvi Bodie's book on Worry Free Investing from this group. Up until then I was

Anoop

Anoop, I consider myself to be risk averse also, and, in fact, did not have much pension money in stocks until recently. But your definition of risk is missing one parameter, which is losing money to inflation. I do think that the "economic rescue" will likely end up being inflationary, and then sitting on cash would not seem as smart as it currently does. Whereas stocks are claims on real economic resources with real buying power, and are likely to survive inflation better.

If inflation starts to take hold, I will move a bunch of assets to a TIPS fund, or individual TIPS. I think that is a safer bet than the stock market for inflation. It might not beat inflation by much, but it will at least track it. If the economy enters stagflation, we may have a period of high inflation during which stocks don't provide returns to offset the inflation.

Anoop

Same is true of all employed persons and has always been so.

The economic indicators for my town were VERY bad during the Clinton administration, because of federal timber policies which made the viability of the town's primary employer, a pulp mill, close. The town I live in was a

You and I see this economy very differently. But in any case, the best time to buy is when things are on sale. The US stock market is on sale. It's true, it might be like sales at Christmas when things go on sale right before the holiday, but come down even more following it. Stocks are on sale, but there may be more downturn to come. I doubt any further downturn will be drastic.

Since you're saving for retirement, why do you care what prices will be next year or the following? Wouldn't you rather be building a true nest egg rather than a shallow nest?

Elizabeth Richardson

One could also note that past anything is not a guarantee of future anything. You are falling into the reductio ad absurdum abyss. We can never say that anything is cheap, by your standard.

If you prefer, re-write my post to, "If historical P/E counts for anything, then stocks are cheap today."

I did not say it was "normal." Do not twist my words to make your point.

By your reasoning every value assigned to a good or service is based in numerology. You can live in the reductio ad absurdum world. Hedonists, gamblers et al. live for this.