It achieves a most amazing result when the author simply dismisses inflation because Charlotte probably will be able to add to her investments through her adult life. That's great for Charlotte, it means she's earning more than it costs her to live, but I thought we were talking about what we as parents or grandparents can do for Charlotte by contributing $1 each day for 18 years. If I did the math right, if we use the Fed's target rate of 2% inflation, then her $4.2 million at age 65 is worth a little less than $1.2 million in today's terms. Its still not an insignificant sum, but inflation can't simply be dismissed because Charlotte will add to her investments.
My older kids were lucky enough to inherit a bit of money from their great grandmother when they were young and I invested $4000 in PRHSX for my last one on the day she was born. I don't really want my kids to think about those gifts as retirement money, but for whatever they decide I'd hope they've at least had a decent head start.

MJG, going back in time a bit. Over the 10 years ending March 31, 1999 only 2 newsletter timing strategies out of 59 tracked by Mark Hulbert were able to beat the returns of a buy and hold strategy in the Wilshire 5000 Index. Over the previous five years (ending March 31, 1999) just 1 out of 104 timing strategies beat the Wilshire 5000 Index. (source: The Hulbert Financial Digest April 27, 1999 issue p.12)
As for Dalbar, they mapped investor return data from January 1984 to December 1997. Over that period the S&P had an annualized return of 17.1%. But the Dalbar study found that the average equity fund investor had an annualized return of only 6.7%. (source: "1999 Personal Planning Investment Guide" Special Advertising Section, Forbes Magazine, May 3, 1999, p. 12.)

FYI: In the past 15 years, a $10,000 investment in large-cap growth funds would have grown to $10,445, according to Morningstar data. That's much lower than the $21,194 for large-cap core funds, which invest in both growth and value stocks.
Large-cap value funds were close behind with $19,605, as was the S&P 500 with $18,742.
Regards,
Ted
http://news.investors.com/photopopup.aspx?path=WEBlv081314.gif&docId=712998&xmpSource=&width=1000&height=1063&caption=&id=713001

Is that "average investor" dollar weighted? Most likely not. So ... sure it's very possible. Chasing hot trends and selling after they tank will get you to zero sum fast.
Agree with Dex that these "average investor" stories are hard to quantify. Also - A lot of 401k type plans allow the investor to borrow significant sums from the plan during their working years and than "repay" that over time - probably paying a very low rate of interest on the money.

It may be possible but you have to add in a lot of other information not provided by the article.
What is the definition of an average investor?
It is over 20 years - was there a draw down of the investors' money, add money or what?
FYI - HYD reduced it's Puerto Rico exposure to 4.3% - pretty low compared to some others.

http://blogs.marketwatch.com/thetell/2014/08/13/1-chart-shows-just-how-badly-average-investor-lags-even-cash/
I find this chart hard to believe but the average investor over the past 20 years has made an annualized 2% to 3% per annum??? Is this just buy and hold propaganda or can it be true??

I stopped reading anything from MF a couple years ago. That doesn't answer anything here but not too interested in anything from financial writers.

We're talking tomorrow (a/k/a Wednesday) at 9:00 Central. Sorry 'bout the short notice, but he had to reschedule an earlier conversation and this one became available on short notice.
My list:
how have you been training your new co-managers, especially given the scurrilous defection of their predecessors? Might this reasonably be read as a matter of succession planning?
the fund celebrates its fifth year at the end of August. In its first couple years, the fund was classified as a midcap and about 80% of the portfolio was in stocks. That's its a large cap fund (albeit with a large midcap component) and about 90% in stocks. Does that reflect a changing opportunity set, a change necessitated by the fund's $3.3 billion asset base or something else?
what do you estimate the strategy's capacity to be?

A back of the envelope calculation suggests that $2.4 billion is the "right" answer if you want to continuing investing in your smallest names and are looking for 30 equally-weighted stocks; about $8 billion if you want to continue investing in your smallest names but maintain individual small cap positions at 1% of the portfolio.

Anything ticking your brains?
David

When I bought VGHCX over 10 years ago, I thought I was buying something which was a bit boring, not too flashy in regards to returns, and a bit defensive in nature in comparison to the broader equity markets.
Even though I was completely wrong on the first two reasons, I still believe that a broad-based healthcare fund can be a defensive holding.

thanks mrdarcey , that's good
Apparently also in this new book, Rational Expectations, he presents his 'forecast' for future performance by asset class. Would be nice to see that. Something along the lines of what GMO does, although I don't know if he goes out 7 years like GMO does, or has chosen some other time frame.
Also, he recently came out with a booklet called something like "If You Can", where he presents the three fund portfolio [Vanguard Total Stock Market; Vanguard Total International Stock Index, and Vanguard Total Bond Market Index fund] as a simple and effective way to invest for retirement, especially if you are new to the workforce.

Hi John
Yes the wife is about 5 years out from retiring from the US Postal Service. I also like their funds. We have G, C, I, 2020 income funds. Sold S end of last year. She works in Amish country....home of the Amish Mafia (lol!), and we are Lebanon Levi protected!
Party on dude!
the Pudd

yes sir work for govt for 10 yrs now as nurse in healthcare @ Veteran hospital.
Their g fund is the best if you are near retirement. my portfolio [41 years old] divided equally in portion I, C, 2040 funds, and large cap/ 20% split in [10% G funds/10% and Money market, proximately 75-80s% in stocks and 20s% in fixed income.
probably retire in 20s+ yrs so don't mess w/ it until near retirements
their fees for the funds etfs are maginal/good reasonable [barclay] company that manage the funds/
one of my colleague at work just retire last wk, he is 70s yr old, he was very greedy and put all his 650sk in china and i fund in 2007 prior the crash. now his portfolio is about 760s after the the rise and more distrubutions, he has learnt his lesson and he is 100% G funds now prior to retirement which is the best thing he did few months prior to retirement...
their 2030s or 2040 or 2050 funds are also very good if your wifey want to play 'couch potato to investment game' and don't have to do much - stay passive and active at same time

@ron,
SPLV seems to perform very similarly to VDIGX. Here are the two over your holding period (actually three years):

The nice thing about VDIGX is it can be backtested over 21 years. Here's a chart comparing 100% VDIGX (SPLV) vs. a 60/40 blend of (VDIGX & BTTRX) staying fully invested over the 21 years. BTTRX is a LT Treaury fund offered by American Century.

The backtesting tool (link in previous comment box) allows investors to input specific mutual funds which enabled me to create the above chart.

I am the least aggressive investor and a long term holder of many positions. SPLV is one of shorter term holdings just over 2 1/2 years and I look at as having about a 50% increase not your recent 5% decline.

Hey, rjb.
I get where you're coming from, but Bernstein was attempting to write a popular statistical model of a portfolio that would approach the Efficient Frontier, while claiming that, since you can't know future asset class performance, you can't know where the Efficient Frontier will lie. In order to do that, he looked at historical asset class performance and correlation. For foreign, since he's writing in the late 90s, the only thing he has long term data for is the EAFE. For small he uses the CRSP 9-10, which gets much farther into microcap territory than VTSMX.
When he starts talking about asset allocation in Chapter 5, he admits up front he is "an asset class junkie," and is willing to own "20 or 30" different asset classes. But the rub is that he wants everything to be a separate asset class. We have 15 years of hindsight and recency bias showing an across the board increase in correlations. For instance, Bernstein approaches bonds as a risk control tool, and assumes correlations of .777 between SC and the S&P 500, and .483 between the EAFE and the S&P 500. It's not so much that Bernstein doesn't want to use total market indices, but that doing so doesn't allow him to really make his broader point re: diversification because there is a lack of data. He ends up using the European stocks as a proxy for the EAFE because there wasn't a Vanguard DM fund yet.
The portfolio Ted points to, he calls the "Level-One Asset Palette," and he designs it for those who find "reading this book ... the equivalent of root canal work." Quickly after he presented it as his Lazy Portfolio. In the book he presents second level and third level "palettes," which include EM, Foreign smallcap, REITs, Natural Resource stocks, short term bonds, TIPS, foreign bonds, and valuation factors.
Not sure if that helps or not, but that's what I gather his reasoning is. Personally, if you're going for as much growth and diversification across 4 asset classes as you could easily get, I would think something like CRSP 9-10 (VB or VBR), foreign small (VSS), Real Assets (VNQ, RWO, VDE, or ALPS), and either an intermediate or hedged foreign bond fund (BND or BNDX) would be better. But some of those funds didn't exist 15 years ago.

@ron,@Catch22,
Calling LT treasuries "equity insurance" might have sent this discussion down the wrong path. Maybe a better analogy would be a portfolio shock absorber. LT Treasuries often out perform at times when equities underperform. Personally, an equity investor should expect a certain range of volatility. Bonds can help dampen and absorb some of the bigger equity bumps allowing an investor to stay "fully" invested.
Retirees recently have had to navigate through two market meltdown (catch22's term) over the last 15 years. If an investor held a portfolio consisting mainly of equities he/she would have two very large holes to fill.
To drive this point home visually I created a graph using a backtested portfolio tool which shows the impact these two meltdowns had on a 100% equity portfolio (ron's $500,000) verses two other portfolios that incorporated a mix of LT bonds and equities.

Backtesting Portfolio Tool:
"This online portfolio backtesting tool allows you to construct a portfolio based on the selected asset class allocation to analyze and backtest portfolio returns, risk characteristics (Sharpe ratio, Sortino ratio), standard deviation, annual returns and rolling returns."
portfoliovisualizer.com/backtest-asset-class-allocation#analysisResults

JohnN,
You said something about tsp.....Thrift Savings Plan? Are you a government employee? Reason I ask is that my wife works for the gov't and has been investing in their TSP for years. Thanx in advance.
Pudd

David Sherman and his Cohanzick Team write in their 2nd quarter 2014 commentary that its funds are managed "very conservatively against most fixed-income risk categories."
However, he goes on to write "...a substantial percentage of the holdings in both funds are invested in below investment grade securities. Therefore, arguably the funds have above average credit risk. Our strategy to maneuver in current markets is founded in the belief that by staying small and nimble that we can take advantage of special situations where our perception of credit risk is different than the market or ratings agencies."
Once it gets three years under its belt, I would imagine RSIVX/RSIIX will have excellent standard deviation/return, Sharpe and Sortino ratings.
The only gripe - and it's a big one - is its expense ratio.

I consider myself a decent investor but note that most years I underperform the appropriate target date fund though as compensation my risk is somewhat lower as I use a stable income fund paying 2% rather than a bond fund and I suppose I have more fun..Given the wide availability of target funds it is unlikely a managed account (1% OR MORE EXTRA FEE) is unlikely to be a good purchase

@davidmoran: I agree, only when go out 15 years does SEQUX have superior percentile numbers.
Regards,
Ted
http://performance.morningstar.com/fund/performance-return.action?t=SEQUX&region=usa&culture=en-US