total returns over the last 9 years


B

beliavsky

Today's (Mach 26) Wall Street Journal says the annualized total
percentage returns of various asset classes since March 1999 have been

2.46 S&P 500
7.18 Foreign country developed stocks
7.68 U.S. Long-Term Treasury Bonds
8.42 Inflation-Protected Treasury Bonds
11.92 U.S. Small Stocks
14.11 REITs
14.51 Gold
17.92 Commodities
19.38 Developing-Country Stocks

I think part of the reason for the poor performance of the S&P 500
since then is that it was priced too high. Financial planners need to
forecast future long-term returns based on current valuations rather
than just extrapolating the past long-term averages, which would
suggested a heavy stock weighting in March 1999. I'm not suggesting
avoiding large-cap stocks now. FWIW, I am bullish, especially relative
to Treasury bonds.

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T

Tad Borek

Today's (Mach 26) Wall Street Journal says the annualized total
percentage returns of various asset classes since March 1999 have been

2.46 S&P 500
I think part of the reason for the poor performance of the S&P 500
since then is that it was priced too high.
Or that a small subset of the index was priced too high. It's
interesting to look at the list of the top 10 issues through time, it
helps put this in perspective. This link downloads an Excel list of the
top-10, through many years, from the S&P site:
http://www2.standardandpoors.com/spf/xls/index/mktval_issues.xls

It wasn't so much an S&P 500 issue as a Nasdaq 100 issue, though of
course many non-Nasdaq stocks were swept in as well. But the S&P 500 not
only inflated in valuation, but also became dominated by companies that
were relatively unimportant in terms of total sales and profits and role
in the US economy. Their market value (and weighting in the S&P 500)
came to dominate the index.

In 1999 Microsoft was #1, and Cisco, Intel, Lucent, and AOL were all on
the top-10 list as well. Even Proctor & Gamble got the bump. Now, only
Microsoft remains on the list and its market cap as of 12/31/07 was just
more than 1/2 of what it was back in 1999. Cisco still hasn't managed to
grow enough to earn even $1.50/share annually, though its price was over
$70 at one point - almost 10 years ago - on the basis of its future
earnings power (ostensibly).

The numbers don't look quite so glum if you view the S&P 500 ex-QQQ or,
even better, a large value index that dodged the fluffiest of growth
stocks entirely. It reinforces the lesson that buying a stock is buying
earnings and if they aren't going to be high enough, you shouldn't pay
much for the stock. One might scan the current top-10 list and see if
there's any relatively unimportant companies that have a place on the
current list; in a way it puts 2007 vs. 1999 in perspective.

I wonder what the commodity returns would be if they adjusted for the
various costs associated with actual investments. It's not quite the
same thing as buying and holding an index fund in the asset class for 9
years.

-Tad

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A

Augustine

I suspect that the best conclusion from this interesting data is not
to buy this or that, but rather to DIVERSIFY!

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R

rick++

S&P is really 6% if you include re-invested dividends.
But thats still no better than treasuries.

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B

beliavsky

Or that a small subset of the index was priced too high. It's
interesting to look at the list of the top 10 issues through time, it
helps put this in perspective. This link downloads an Excel list of the
top-10, through many years, from the S&P site:http://www2.standardandpoors.com/spf/xls/index/mktval_issues.xls

It wasn't so much an S&P 500 issue as a Nasdaq 100 issue, though of
course many non-Nasdaq stocks were swept in as well. But the S&P 500 not
only inflated in valuation, but also became dominated by companies that
were relatively unimportant in terms of total sales and profits and role
in the US economy. Their market value (and weighting in the S&P 500)
came to dominate the index.

In 1999 Microsoft was #1, and Cisco, Intel, Lucent, and AOL were all on
the top-10 list as well. Even Proctor & Gamble got the bump. Now, only
Microsoft remains on the list and its market cap as of 12/31/07 was just
more than 1/2 of what it was back in 1999. Cisco still hasn't managed to
grow enough to earn even $1.50/share annually, though its price was over
$70 at one point - almost 10 years ago - on the basis of its future
earnings power (ostensibly).

The numbers don't look quite so glum if you view the S&P 500 ex-QQQ or,
even better, a large value index that dodged the fluffiest of growth
stocks entirely. It reinforces the lesson that buying a stock is buying
earnings and if they aren't going to be high enough, you shouldn't pay
much for the stock. One might scan the current top-10 list and see if
there's any relatively unimportant companies that have a place on the
current list; in a way it puts 2007 vs. 1999 in perspective.

I wonder what the commodity returns would be if they adjusted for the
various costs associated with actual investments. It's not quite the
same thing as buying and holding an index fund in the asset class for 9
years.
Probably the commodity index used most often in asset allocation
studies is the Goldman Sachs Commodity Index (GSCI),
which S&P has now adopted. An IShare ETF tracking that index, ticker
symbol GSG, has an expense ratio of 0.75% . I don't think expense
ratios usually include bid-ask spreads paid, although they will affect
the total returns.

Any commodity index will have a heavy weight in energy and therefore
oil. One could probably get some of the benefits of the commodity
exposure by owning just oil futures. There are brokerage firms such as
OptionsXpress (OX) that allow one to have futures positions, stocks,
and mutual funds in a single account. The current market in December
2008 crude oil futures (WTI) is

101.86 (3) Ask
101.89 (1) Offered

and the multiplier is $1000, so that a single contract controls about
$100K of oil, and OX commissions on futures trades are about $10 per
round trip. The biggest expense if one holds such a position for a
year will be that OX does not pay interest on the margin one must put
up, which is currently about $7400 per contract of crude oil. I
estimate the annual interest expense as a fraction of notional
exposure to be 0.22% if interest rates are 3%, with brokerage and bid-
ask amounting to another 0.04%, adding up to 0.26% -- not that high.


======================================= MODERATOR'S COMMENT:
Posters to this thread should relate comments to general financial planning.

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H

HW \Skip\ Weldon

S&P is really 6% if you include re-invested dividends.
But thats still no better than treasuries.
Looks like a good time to have been buying. Hope it continues.


-HW "Skip" Weldon
Columbia, SC

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R

Rich Carreiro

S&P is really 6% if you include re-invested dividends.
But thats still no better than treasuries.
I don't think so. The table (and the article it's from)
specifically talk about "total return". That means
re-invested dividends are already included in that near-zero
figure for the SP500.

--
Rich Carreiro (e-mail address removed)

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M

mike742

$100K of oil, and OX commissions on futures trades are about $10
per
round trip. The biggest expense if one holds such a position for a
year will be that OX does not pay interest on the margin one must put
up, which is currently about $7400 per contract of crude oil.
This isn't strickly true -- it's possible to use t-bills as margin and
then
get the interest on the margin money. The money is tied up and the
t-bills have to be in the margin account. Also some cash is needed
too,
it can't all be t-bills.

T-bill (for use as margin) policies at different commodity trading
firms differ,
but have some similarities. Ask your firm...

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E

Elizabeth Richardson

Today's (Mach 26) Wall Street Journal says the annualized total
percentage returns of various asset classes since March 1999 have been
I just think it's interesting they chose to compute returns over a 9 year
period. Not 5, 10, 15, some usually used period of time. Yes, I know the
stock market has been particularly interesting since 1999, but it's not a
very useful time frame.

Elizabeth Richardson

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J

joetaxpayer

Elizabeth said:
I just think it's interesting they chose to compute returns over a 9 year
period. Not 5, 10, 15, some usually used period of time. Yes, I know the
stock market has been particularly interesting since 1999, but it's not a
very useful time frame.
I agree with you. My notes show S&P at 1286 then. Go back an extra year
and it was 1101, so they skipped a 17% return (plus div).
Lies, damn lies, statistics.

I'm sure with some effort, I can come up with the return seen had
someone started investing in 1999, monthly or quarterly deposits. They
did much better buying in 02/03 under 1000 and even under 900 for a few
quarters. I know that when I look at net worth numbers (my own) that it
appears I did far better than 2-3% during that 9 year period. Although I
may suffer from Beardstown Lady syndrome (recall how they underperformed
the market, but forgot to subtract their own deposits, so thought they
did very well.)
The combination of aggressive savings and 401(k) deposits right through
the tech crash was right for me in hindsight.

Joe
www.blog.joetaxpayer.com

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E

Elizabeth Richardson

The combination of aggressive savings and 401(k) deposits right through
the tech crash was right for me in hindsight.
Me, too, Joe. It's one of the two main reasons we're able to have retired
with my husband in his early 50s.

Elizabeth Richardson

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R

Ron Rosenfeld

S&P is really 6% if you include re-invested dividends.
But thats still no better than treasuries.
No, the 2.46% annualized is TOTAL RETURN.

That figure is one of the benchmarks I use for my own investing, and I've
got month-end figures for S&P500 Total Return dating back to 1975. (I
originally got these figures from Barra, but now they can be found on the
S&P website).

For the same period (3/1/1999 - 2/29/2008), the S&P Midcap 400 is 10.48%;
and the small cap 600 is 10.55%.
--ron

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