Copyright 2017 Tom Madell, PhD, Publisher
Dec. 2017. Published Dec. 1, 2017.
By Tom Madell
If one reads the daily spew of investing advice flowing forth from the Internet these days, it seems one could get nothing but confused by the opposing opinions now being rendered on stocks, bonds, or you name it. Of course, this has probably always the case as the pundits line up on either the bull or bear side of any type of investment in good times and bad.
You should be aware though that, typically, a bull market breeds more bullishness among the populace, while a bear market, once established, does just the opposite. This logically means that people become most enthusiastic about investing when prices are high and least enthusiastic when prices are low, a potentially dangerous fact about how things almost always work.
Certainly right now, it doesn't take an expert to recognize that many categories of stocks and stock funds are at extremely high levels. Throughout history, this has led to the downfall of many investors with a short-term orientation, or those who might have thought they had a long-term orientation, but only to "cave" when stocks finally plunged which they inevitably did, sooner or later. So to help remove this possibility, does this automatically mean that investors should reduce their exposure to sky high priced funds, or even get out altogether?
Not necessarily because, over the long term, even if stocks correct severely, if one can hold on long term, prices recover and go on to still turn out to have been a fine investment over the years. So beyond strategic moves (such as now considering moving between high-priced US stocks and more reasonably priced international stocks), "getting out" of stocks may not prove to be the most worthwhile strategy for the truly long-term investor. (Exceptions abound, of course, as for example, if one is content they have already achieved their financial objectives and are now willing to accept a smaller return in exchange for preserving what they have already achieved - many retired investors may now fall into this category.)
While it may be nearly impossible for a given investor to totally accurately assess if they are truly long-term investors as unpredicted events unfold, it becomes critical to be as accurate as possible when making this self-assessment in order to best judge whether now might be the time to follow the many bearish warnings now cropping up, or opting to stick with your ongoing plan and your current allocations.
However, if you happen, like me, to occasionally read what the "experts" say, you may have already discovered there is no shortage of columnists offering what appears to be good, regularly published free advice on the Net. Readers might choose to take advantage of these free resources since, like on my own site, there is no obligation involved. If you get something from reading these columnists' articles, great, but if you don't, you are free to ignore whatever you disagree with, or stop reading altogether.
The downside: From my perspective, at least, too many of these columnists deal with advice that is often geared toward short-term investors. However, if you look carefully, you may be able to find what I consider to be knowledgeable writers who gear their material toward how to do well in the long term.
While I have not done an extensive search of such writers' archives which would be necessary for me to confidently recommend following them, I did come across one whose ideas and, yes, advice, does seem highly worthwhile. And unless you read extensively about investing, you probably have never heard of him. His name is Steven Goldberg. Goldberg writes for Kiplinger magazine but his articles can be found on kiplinger.com and, occasionally, other sites. Many free advice providers offer services beyond their free articles, which is also true of Mr. Goldberg; I offer no opinion about these services. But his regular columns do appear to be full of sound advice and written with a clarity not always found.
So, I will now do something I haven't done before: feature the thoughts of just this one particular writer on just a few topics that should be of current interest to many investors. I will briefly summarize some of Goldberg's recent and particularly relevant articles dealing with mutual funds and ETFs and, for contrast, highlight some points that I either particularly agree or disagree with.
Goldberg's archive goes back over a decade. To review the articles mentioned below, you will find the links here.
"5 Reasons Stocks Should Keep Climbing" (October 24, 2017) presents the arguments I see over and over for why stocks still look good, in spite of 8 1/2 years of gains. These arguments, based mainly on economic fundamentals, seem plausible enough and are some of the same reasons I have been hesistant to advocate any large scale trimming down of one's stock holdings. However, I do see the need to try to set an absolute upper limit on one's percentage allocated to stocks within a portfolio in light of the high valuations Goldberg refers to.
As stock prices continue to go up, far exceeding the returns on bonds or cash, the result is that one's portfolio becomes more and more heavily weighted to stocks. While this portfolio growth makes investors happy, an investor may now be more likely to disregard how much more he/she has in stocks than originally intended. But one's asset allocation, percentagewise, ideally should not be a moving yardstick going from, say, 60% in stocks to 70%, merely because stocks are doing so well. That would be akin to putting more money into stocks the higher they go.
Instead, investors should base their stock allocation on their personal financial situation, and more specifically, on their own risk tolerance. If anything, when stocks are far outperforming other assets, one should likely start to have more to lose than to gain by allowing their stock allocations to drift higher. So, a "steady as she goes" approach is likely superior to letting the market's optimism carry you too far from your own well-thought-out-in-advance allocations, or at least what should have been such.
"Japan's Stock Market Rebounds Under Abenomics" (Nov. 6, 2017) presents compelling reasons why Goldberg states you may want to have at least 15 to 20% of your foreign allocation invested in Japan and gives suggestions of specific funds investing there. Of course, most broadly diversified foreign stock funds will have some percentage allocated there and that may be all you need. For example, if you just hold Vanguard Total International Stock Index Fund (VGTSX), you will meet this requirement since it holds about 17.5% in Japanese stocks. On the other hand, other international stock funds may have far less, such as Tweedy, Browne Global Value Fund (TBGVX) with only about 2%. Therefore, if one owns both funds in about the same amount, you likely own only about 10% there.
While owning a fund that invests solely in Japan appears to be Goldberg's preferred strategy, from my perspective, most moderate risk investors might not want to go that far. In fact, while Japanese stocks may indeed have the above average prospects Goldberg anticipates, these stocks have already come a long way while most investors may not have noticed. To wit: While the Vanguard 500 Index has gained approximately more than 15.5% annualized over the last 5 years with a forward-looking P/E of about 21, Goldberg's recommended T. Rowe Price Japan (PRJPX) has gained close to 16% ann., suggesting it may be just as overvalued with a forward-looking P/E over 20. That's why I recommend Vanguard Pacific Stock Index (VPACX) with a little more diversification outside Japan, and a current P/E of about 14.5.
In "5 Index-Beating Vanguard Funds" (May 15, 2017), Goldberg touts some actively managed funds that beaten the S&P 500 index. In fact, he cites a study by Dan Wiener, editor of The Independent Adviser for Vanguard Investors newsletter, showing that 14 Vanguard funds did just that over the past 15 years. (Readers might note that, months earlier on Jan. 28, 2017, I published my own article on the same topic, "17 Managed Funds That Have Beaten the Indexes Over a 17 Year Period" ).
Goldberg goes on to name three of what he considers to be Vanguard's best managed funds that are still open to new investors and two that are nearly identical to two of the closed funds. Here is his list: (Read the article to see what he likes about each fund.)
-Vanguard Health Care (VGHCX)
-Vanguard International Growth (VWIGX)
-Vanguard Wellington Fund (VWELX)
-Primecap Odyssey Growth (POGRX)
-Primecap Odyssey Stock (POSKX)
While all of these five funds (with the possible exception of VWELX) are obviously exceptional funds and may continue to shine for many years to come, I have problems endorsing funds right now that so heavily emphasize healthcare and technology, i.e. growth stocks, after such stellar gains have already been achieved. So, I tend to agree more with Goldberg's more recent analysis, "Are Value Stocks Ready to Rebound?" (Sept. 13, 2017) which seems to suggest that value stocks are more the place to be in the years ahead as opposed to growth stocks, although both should be part of a good portfolio.
VWIGX is a Vanguard fund I have long recommended. This year, it is far surpassing its comparable Vanguard index fund, Vanguard Total International Stock Index (VGTSX). As of 11/30, it is up over 41.5 vs. 24.8% for VGTSX. However, since international stocks remain undervalued, I would still recommend buying this fund if you don't already own it.
A word about VWELX: I almost never recommend so-called "balanced" funds such as VWELX (that is, it is a blend of both stocks and bonds) except perhaps for investors who truly want one-stop shopping. One of the reasons the fund has done well over the years is that many its bonds have a moderately high degree of interest rate risk. While this has been a good strategy as the bond market boomed, these bonds will suffer more than average if long-term interest rates go up. Incidentally, the fund is only open to new investors if you buy it directly from Vanguard and not from other third party fund companies.
Finally, a good read with some time-honored insights can be found in the article "Black Monday: What I Learned from the 1987 Stock Market Crash".(Oct. 9, 2017). The key takeaways, all of which I agree with, are:
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