S&P500 at record highs - time to stay in or pull out?

[Phooey]

Inlineonline said:

Mr Whippy said:

Inlineonline said:

Been doing this for 18 years and it s pretty clear to me that I could have just stuck the money in a tracker and saved a lot of stress and heartache and probably made even more profit!

The last 18 years have been quite abnormal as things go.

Historic examples of everything under the sun to do with finance. Debt levels, rate cuts, shortest bear markets, most QE, most debt, biggest deficits.

I'd suggest at least being aware of why global trackers have done so well and what the risks of now being positioned like that are vs the rest of market history outside the last 18 yrs.

I get that, but why should I expect to beat the market on a consistent basis when the majority of professional fund managers don't?

Stock picking is just gambling IMHO

The real skill is in assessing your risk appetite and deciding on asset allocation. That's where you can add value with your own personal knowledge and insight.

Very much worth a read of this..


"Why stock picking is even harder than you think"

https://www.evidenceinvestor.com/post/stock-pickin...


"Why stock picking loses to the index by design

An index fund doesn't win by being clever. It wins because its construction solves the three problems that defeat stock pickers.


First, selection. The Strathclyde data shows that missing even a few of the 3.1 per cent of wealth creators is catastrophic over time. The index owns every listed company — Shell, HSBC, AstraZeneca, and every other wealth creator at full weight. No research required. No conviction needed.


Second, sizing. Fund managers who correctly identify winners often underweight them. The index doesn't. When AstraZeneca's share price doubles, its index weight doubles automatically. No compliance officer intervenes. No risk committee trims the position. The winners compound without interference.


Third, trading. Research by Drienko and colleagues in the Financial Analysts Journal found that active managers show genuine skill in buying stocks — but their selling decisions lag even a random-selling strategy. Roughly 85 per cent of a manager's selection advantage accrues within the first six months; beyond two years, relative performance typically reverses. The index sidesteps the problem entirely. It doesn't sell winners. It doesn't rotate into the next idea. It holds.


Bogle's advice was to stop looking for the needle and buy the whole haystack. The Strathclyde data shows why that instinct was even more right than Bogle knew. In a market where fewer than two in a hundred stocks create all the real wealth, owning the haystack isn't convenient. It's the only strategy that guarantees you own every needle.


Big Bang promised to democratise the City. Four decades on, the evidence says it opened the door to a game almost nobody can win — and a game that gets harder with each passing decade. Post-Brexit, 2.5 per cent of stocks carried the market. Post-Covid, 1.8 per cent.


Stock picking was always hard. What 50 years of data now shows is that it's become something closer to impossible — not because investors lack talent, but because the market's architecture concentrates rewards so narrowly that skill in picking, sizing, and holding must all be near-perfect simultaneously. Even professionals who clear the first hurdle stumble on the second and third.


But none of that matters if you own the whole market. Your index fund holds every stock that will generate tomorrow's wealth, at the right weight, with no temptation to sell too early.


The needles keep getting rarer. You already own the entire haystack."

[The Gauge]

If Global Index tracking funds are being regarded as the fund to choose for long term growth (which I agree with) why would anyone invest in other funds? Is it just personal preference, lack of knowledge, or actually having particular knowledge that others don't?

[Blue_star]

One way to see it is perhaps you want to have different weighting between various individual funds. Possible higher weight of asian or emerging markets

Also if you rebalance every year could be that you end up selling higher and buyer lower altogether.

On my second point id like some criticism from readers

[ooid]

Every geopolitical event or rather random $hit-show always ended with the same way (different timings).

Recovery.

[Blue_star]

First one is dreadful

[Mr Whippy]

The Gauge said:

If Global Index tracking funds are being regarded as the fund to choose for long term growth (which I agree with) why would anyone invest in other funds? Is it just personal preference, lack of knowledge, or actually having particular knowledge that others don't?

There is a very clear mantra though, everyone can't be a winner.

If everyone invested in 'global' and there was no other choice, there would be no growth unless the entire planet actually grew in real value per head/investor.

So you've got to ask do you think the global position can be net positive after inflation year on year, everyone in the world can be better off tomorrow than today?

I frankly think that's a dream as it stands today.

There is definitely tons of value out there, but not in the nebulous diffused 'global' imo.



Also that 'global' paradigm makes sense if you're buying over time, because it rebalances to what's moving as you buy at the new weightings all the time.
If you have £1m making you an income/retirement fund, and in the next 25 years the global stays still but USA doubles and everyone else halves, so you stand still, you're gonna have £1m doing nothing for you.

[732NM]

The Gauge said:

If Global Index tracking funds are being regarded as the fund to choose for long term growth (which I agree with) why would anyone invest in other funds? Is it just personal preference, lack of knowledge, or actually having particular knowledge that others don't?

I chucked a lump into a technology stocks managed pension fund 9 years ago, and have just left it alone.
It's massively outperformed the usual indexes. It's had it's ups and downs, the last 6 months have been effectively flat due to the rise and then fall of tech as they throw fortunes at AI buildout in November, but it's now looking more sensible on PE for many of the players, and continues to generate large cash income to these businesses.

It just seemed to me back then that tech would be a likely growth area, and having it spread in a broad group of companies in that area was more sensible than trying to pick one winner. It's been interesting to watch the companies within this fund ebb and flow in value, whilst the whole damps that volatility out overall.

[locoloco]

The upside as i see it of a tracker is 'buy and forget' with the assumption that over a certain period the charts will be up and to the right. The downside is being under/overweight through periods of change - especially when change comes ever faster.

Sure holding enough stocks of varying correlation and beta will smooth things out, but at the likely opportunity of having bigger gains (or one could argue bigger loses). But there's sectors within an index that for sure are going to be the ones to hold/not for periods and in the main those don't take a genius to figure out. Before the Iran 'thing' popped up, energy was likely a bottleneck to AI/DCentres and growing general demand, software was always likely to take a hit when new AI models came out that could start to eat the moats of long established companies and so on.

So whilst stock picking might not be everyone's cup of tea, perhaps picking and rotating with the various sectors that make up something like the S&P is a little easier to manage and potentially very rewarding; SP500 flat YTD, due to 3 sectors having dble digit growth and 3 having pullbacks and the rest 'so so'.

[Jakey123]

Mr Whippy said:

There is a very clear mantra though, everyone can't be a winner.

If everyone invested in 'global' and there was no other choice, there would be no growth unless the entire planet actually grew in real value per head/investor.

So you've got to ask do you think the global position can be net positive after inflation year on year, everyone in the world can be better off tomorrow than today?

I frankly think that's a dream as it stands today.

There is definitely tons of value out there, but not in the nebulous diffused 'global' imo.



Also that 'global' paradigm makes sense if you're buying over time, because it rebalances to what's moving as you buy at the new weightings all the time.
If you have £1m making you an income/retirement fund, and in the next 25 years the global stays still but USA doubles and everyone else halves, so you stand still, you're gonna have £1m doing nothing for you.

I see your logic.

What are you suggesting instead?
What is your method to avoid the risk you are mentioning?
Cash ISAs or guaranteed returns just guarantee you lose vs inflation.
Picking stocks proved to also be a gamble...?

[The Gauge]

locoloco said:

...perhaps picking and rotating with the various sectors that make up something like the S&P is a little easier to manage and potentially very rewarding...

On that point is there a list/chart anywhere that lists all the different companies together in group type within any given fund, such as the S&P500?
Wikipedia shows all S&P500 companies in alphabetical order, but not in a way that groups them together per category such as all the companies within..

Information Technology
Health Care
Financial etc etc

Edited by The Gauge on Friday 10th April 14:36

[locoloco]

should be able to get the components of each sector using either google or asking Claude/Grok - your AI of choice.

i found it quite illuminating that for example Energy within SP500 doesn't include a few companies which (for me) are highly interesting as part of the D/Centre build outs (or has them at a low weighting). And tech etc covers such a wide area that it misses/doesn't focus enough certain key areas relating again to the whole rack infrastructure of a DC buildout.

[Inlineonline]

There s actually a very sound reason to expect that investing in the global index should return consistent and lower risk returns than either sectoral, country or even individual stock picking.

You re basing your investment on the premise that the global economy in total will relentlessly improve. Well populations increase, that increases economic activity. In addition improvements in health, education, governance, technology etc all have massively improved productivity and will probably continue to do so.

Of course there are drags, increasing inequality, the effects of climate change, overcrowding and competition for resources notably water.

But overall I m happy to bet my future on the global future.

Or I could try to stock pick and assume arrogantly that I uniquely can do this better than the next investor (speculator)

The financial services industry is build on promises to beat the average, which fail even the most basic tests of logic.

This is not to say that sound financial planing in the form of risk, asset allocation, tax and inheritance planning aren t worthwhile. Just not stockpicking , it s middle class gambling IMHO

Edited by Inlineonline on Friday 10th April 15:28

[Panamax]

Inlineonline said:

The financial services industry is build on promises to beat the average, which fail even the most basic tests of logic.

That logic doesn't stand up to scrutiny. In this context "average" usually means the median performer.

This "average" is "average" because it's beaten 50% of the time and underperformed 50% of the time. In other words, if you're "average" you're half way down the list of winners and half way up the list of losers. You're being beaten half the time.

And then you get to the problem of median. If one third (by number) are good performers and two thirds (by number) are poor performers the median must, by definition, be a poor performer. Which in turn raises the question, "what's a good performance?"

All-in-all there are no easy answers. But yes, if you buy the Index you should more or less get the Index - although fees will cause some lag.

[130R]

The Gauge said:

If Global Index tracking funds are being regarded as the fund to choose for long term growth (which I agree with) why would anyone invest in other funds? Is it just personal preference, lack of knowledge, or actually having particular knowledge that others don't?

They are lower risk but not necessarily best performing. For example, over the last 10 years a purely S&P 500 (US) index fund has outperformed a Global index fund.

The flip side being - is it guaranteed the US will be the best performing market for the next 10 years? No it's not.

[Inlineonline]

Panamax said:

Inlineonline said:

The financial services industry is build on promises to beat the average, which fail even the most basic tests of logic.

That logic doesn't stand up to scrutiny. In this context "average" usually means the median performer.

This "average" is "average" because it's beaten 50% of the time and underperformed 50% of the time. In other words, if you're "average" you're half way down the list of winners and half way up the list of losers. You're being beaten half the time.

And then you get to the problem of median. If one third (by number) are good performers and two thirds (by number) are poor performers the median must, by definition, be a poor performer. Which in turn raises the question, "what's a good performance?"

All-in-all there are no easy answers. But yes, if you buy the Index you should more or less get the Index - although fees will cause some lag.

But over a 10+ year time frame less than 10% of actively managed funds beat the market. Not only do they have to beat the index, the have to cover their (sometimes quite high) fees.

Over a shorter time frame it’s just pot luck as you can’t know whether an individuals performance is skill or just random chance


And if 90 % underperform the index how are you to pick one of the 10% that beat the index over the long term?

[okgo]

The Gauge said:

If Global Index tracking funds are being regarded as the fund to choose for long term growth (which I agree with) why would anyone invest in other funds? Is it just personal preference, lack of knowledge, or actually having particular knowledge that others don't?

Why does the diet industry exist when everyone knows how to lose weight sustainably? Same same. Humans are greedy, impatient and lazy.

[732NM]

Inlineonline said:

But over a 10+ year time frame less than 10% of actively managed funds beat the market. Not only do they have to beat the index, the have to cover their (sometimes quite high) fees.

Over a shorter time frame it s just pot luck as you can t know whether an individuals performance is skill or just random chance


And if 90 % underperform the index how are you to pick one of the 10% that beat the index over the long term?

What do you mean by the market?

[The Gauge]

130R said:

The Gauge said:

If Global Index tracking funds are being regarded as the fund to choose for long term growth (which I agree with) why would anyone invest in other funds? Is it just personal preference, lack of knowledge, or actually having particular knowledge that others don't?

They are lower risk but not necessarily best performing. For example, over the last 10 years a purely S&P 500 (US) index fund has outperformed a Global index fund.

The flip side being - is it guaranteed the US will be the best performing market for the next 10 years? No it's not.

I like the idea of the Global Index fund for diversification. However if you already had a chunk of money invested there, and you later had another chunk of money to invest, would it make sense to diversify further by putting it in other funds such as SP500 etc or even individual sectors such as technology, health etc. Or would doing so be no different to just putting it into your existing global index?

[Hustle_]

A global tracker is typically already ~60% S&P 500 so buying more S&P 500 on the side is concentration not diversification.

[simon800]

The Gauge said:

I like the idea of the Global Index fund for diversification. However if you already had a chunk of money invested there, and you later had another chunk of money to invest, would it make sense to diversify further by putting it in other funds such as SP500 etc or even individual sectors such as technology, health etc. Or would doing so be no different to just putting it into your existing global index?

This would add concentration, rather than diversification