Set forth below is the text of a comment that I recently posted to the discussion thread for another blog entry at this site:
Robb,
Thank you very much for your reply ,it does make a lot of sense staying the course with small return vehicles until the stock market valuation is at a reasonable level. So that I can increase my stock levels as the valuation gets more reasonable. Off the subject I was thinking an all purpose total S&P 500 ETF might be best for the stock portion. What is your opinion of these “advisers” I see on some of the web sites like SA, claiming a 9% return with dividend stocks? I know you do not give stock advise but if you just have a personal opinion about this
Be well
Max
It’s not something that I know anything about, Max. Please understand that I am NOT an investment expert. I don’t claim to be one and I am not one. I am a journalist. I have the skills of a journalist. I happened to do some writing about investing and I saw a huge positive response to it and I also saw an intense negative response to it and I thought “this is amazing — what a story!” So I tried to figure it out. I wanted to be able to tell this super important story completely and fairly. So I worked it and worked it and worked it.
I have to talk about investing stuff because that is part of the story. So, for example, with safe withdrawal rates, I had to develop a calculator that gives accurate reports of the safe withdrawal rate so that I could tell people how far off the Buy-and-Hold retirement studies are. No one else has those numbers. So it makes it appear as if I am some sort of expert in that I am giving people important information that is not available elsewhere. But it is not my intent to create that impression. My intent is to report this important story accurately and completely and fairly. It would be fair to say that I have become an expert on the question of how emotions and valuations interact. I think it would be fair to say that I am the world expert re that one. But not by choice exactly. I did not set out to be an expert even in that area. I became one because I wanted to tell the story effectively and I had to settle certain questions to do so and that made me a bit of an expert in relative terms.
But I just do not make any effort to become knowledgeable re funds and that sort of thing. There are lots of people who do a better job of that sort of thing and I don’t see that there’s anything that I can add to the mix. So I just don’t go down that road. Vanguard has good index funds with low fees. That’s where I would look for a fund. I would look for a broad U.S. fund. Keep it simple.
I don’t know what the claims are re 9 percent returns. There is certainly no asset class where you can get a guaranteed 9 percent real return. I don’t know precisely what the claims are that are being made. I DO have positive feelings about dividend stocks. When stocks have high dividends, you are protected to an extent. So I think it makes sense to explore that sort of thing if you have the time. But if you move away from a broad index fund, you need to put time into research to be sure that you understand what you are doing. I have run into very smart people who believe that investing in high dividend stocks is a good idea and I am persuaded that they are on the right track. So I would not dissuade you from the general idea of looking at dividend stocks. I would just check into that 9 percent claim. When something sounds too good to be true, there’s a good chance that it is not true. But perhaps the claim is explained when you look at all the details of it. I have not done that. So I cannot say.
That’s probably not terribly helpful. I don’t want to go down the road of moving outside of my area of “expertise.” I think the question of whether the market is efficient or valuations affect long-term returns is HUGE. I think that I could write about that for the rest of my life and never have time to move on to other issues. I can just go deeper and deeper and deeper and never run out of exciting stuff to explore. And there are very few others exploring that particular, hugely important, question. So I just intend to stick to that. I will work it and work it and work it to come up with good answers in that area. But I think it is better to leave it to others to work all the other areas because they know more than me about those areas and I just don’t feel that I have much to add outside of that one super-big matter.
That’s where I am coming from, in any event. The valuations thing is so big that it is my view that it’s almost impossible to mess up if you come to a good understanding of the valuations thing while it is also almost impossible to do well in the long run if you fail to come to a good understanding of the valuations thing. I see the valuations thing as being 70 percent of the stock investing story. I don’t claim to understand it all myself. I am still working it. It really has to do with understanding human psychology. That’s a big topic! And we have not done a good job in the past of applying what we know about human psychology to the stock market. I think it scares us. We don’t like to accept that human emotions affect stock prices because it causes us to lose confidence that we know where we stand financially. So there is a lot of work to be done in that particular area.
I hope that helps a tiny, tiny bit and I of course wish you the best of luck with whatever choices you make. I’ll tell you the tricky one. You could get it all right and still see bad results because most other investors fail to get it right. When the market crashes, it does great harm to our economic system. And we all suffer when damage is done to the economic system. That’s my big fear. I could figure all this valuations stuff out perfectly and the fact that millions of others don’t understand how it works could cause a crash, which could cause a Great Depression. Where am I then? We are all in this together. That’s my most important message. We all need to be concerned with the functioning of the market as a whole, not just with our personal returns. Very few people pick up on that message. That reality is my greatest frustration. When the stock market becomes mispriced, it’s like the air becoming polluted or the water becoming polluted. We all feel the effects.
My best wishes to you.
Rob
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