*Investors Blog*

[gfh77665]

I always want to see market return data adjusted for inflation.

https://www.gurufocus.com/economic_indicators/5860/inflation-adjusted-sp-500-index-price

 

[PWMDMD]

I always want to see market return data adjusted for inflation.

https://www.gurufocus.com/economic_indicators/5860/inflation-adjusted-sp-500-index-price

So the YOY unadjusted is 33.69% - either way, those are phenomenal returns.

 

[ecotourist]

I'm rebalancing. I was recently down to 28% cash and bonds. Sold a proportion of a perfectly good US broad market ETF and a Canadian small cap mutual fund last week. I'm buying bonds. Heading for 40% cash and bonds.

In my opinion the markets are very high. And this is October. Enough said.

 

[RAVL]

Why? It was an honest question, you gave me a reasonable answer, thank you, so no need to get your panties in a wad.

I guess what I'm asking is are income to all of those averages down purely because wage growth is down or is it wage growth plus hours worked? My father worked +70 hours per week because if he had worked 40 hours per week we would've been homeless. I don't know anyone personally who works more than 50 hours per week now. I'm also not advocating everyone should need to work themselves into an early grave to live a reasonable life - I'm just asking questions.

I think you are making a fair point above and here. One thing I have seen, particularly when we used to do a lot of driving through small rural towns when we had our little race team, is that a lot of the businesses and factories that used to provide the stability for people to work a lot of hours to provide for the family are gone. My dad worked a ton of hours too, but at least they had that option. Part of the way the economy has evolved, in terms of industrialization, has really hurt certain groups. These are the areas, coincidentally, where the Trump message resonates. We are seeing a similar dynamic in Europe - often called the “far right” but I think that may be unfair. Combine de industrialization with the breakdown in the traditional family - lots of reasons for that - and as much as anything else these factors have contributed to a sense of great unease in a large portion of the population. And while I am an advocate of lawful immigration, a lot of the flood of unlawful immigration the last decade or so has I think pushed wages down for certain jobs and made it harder to get those jobs and created a lot of animosity for people who can’t move to a premium district or put their kids in private school. I think that a lot of these factors are what is behind much of it.

For me, I am an optimist by nature and I am always going to take a long position when it comes to betting on our country’s prosperity. But I think there are things that we are doing now that have increased the uncertainty and anxiety among the groups of people who are not as credentialed. But i think your questioning this idea that the past was always so great is right - we do live far better today on average than we did 50 or 100 years ago. Perhaps people’s expectations have increased as well.

 

[SC Maintenance]

Why? It was an honest question, you gave me a reasonable answer, thank you, so no need to get your panties in a wad.

I guess what I'm asking is are income to all of those averages down purely because wage growth is down or is it wage growth plus hours worked? My father worked +70 hours per week because if he had worked 40 hours per week we would've been homeless. I don't know anyone personally who works more than 50 hours per week now. I'm also not advocating everyone should need to work themselves into an early grave to live a reasonable life - I'm just asking questions.

Since I do respect your opinions and comments I will answer one more time.

So many people come on this site and say "everyone I know is doing really well, so the official data the BLS and Fed collect must be a lie". So OK, feel free to believe the BLS outright lies. Everyone seems to be biased completely by their own experience.

There have always been ambitious people and lazy people. The difference is that ambitious people in the past almost were assured of some minimum level of success - like owning a home or whatever.

Median household income in the last 5 years has gone from 68000 to 80,000 - so like 17.5%. But housing is up 50%, cars are up 40%, as are utilities, health care, college education, etc. Like I said - its just math.

Regarding hours worked, it may be possible. There are fewer hours worked per job - primarily by employer choice, but there are also way more people with 2 or more jobs. Also the job numbers do not include the gig economy - uber drivers, programmers working contract, day temp workers, etc - which there are more than ever but don't show up in any official numbers because there all W2, not employed.

I worked 60+ hours a week for much of my life - ask my wife. We have much to show for it also. I also know lots of people my age and much older that worked 40 hours and not one minute more, didn't seem particularly ambitious to me, and they have a house, and a car, and likely a pension or 401K.

Should people work harder now to overcome it? I would, because you have no choice. But I can look over my glasses and at least understand the frustration, rather than just dismissing it. Things are harder now than they used to be. Either suck it up and fail, but don't try to say its simply fiction because the math says otherwise.

So, truly all I will say about that now.
/ end rant.

 

[PWMDMD]

Since I do respect your opinions and comments I will answer one more time.

So many people come on this site and say "everyone I know is doing really well, so the official data the BLS and Fed collect must be a lie". So OK, feel free to believe the BLS outright lies. Everyone seems to be biased completely by their own experience.

There have always been ambitious people and lazy people. The difference is that ambitious people in the past almost were assured of some minimum level of success - like owning a home or whatever.

Median household income in the last 5 years has gone from 68000 to 80,000 - so like 17.5%. But housing is up 50%, cars are up 40%, as are utilities, health care, college education, etc. Like I said - its just math.

Regarding hours worked, it may be possible. There are fewer hours worked per job - primarily by employer choice, but there are also way more people with 2 or more jobs. Also the job numbers do not include the gig economy - uber drivers, programmers working contract, day temp workers, etc - which there are more than ever but don't show up in any official numbers because there all W2, not employed.

I worked 60+ hours a week for much of my life - ask my wife. We have much to show for it also. I also know lots of people my age and much older that worked 40 hours and not one minute more, didn't seem particularly ambitious to me, and they have a house, and a car, and likely a pension or 401K.

Should people work harder now to overcome it? I would, because you have no choice. But I can look over my glasses and at least understand the frustration, rather than just dismissing it. Things are harder now than they used to be. Either suck it up and fail, but don't try to say its simply fiction because the math says otherwise.

So, truly all I will say about that now.
/ end rant.

As I said, I simply asked a few questions, and I appreciate you taking the time to give me a thorough response. Now since I'm one of those ambitious people, I have hours of homework to do on a Sunday in my quest for a competitive advantage over my fellow Americans.

 

[supton]

All you need to do is look at the income ratio's of median income to average home price, average new car price, average used car price, average apartment rental price, average 401K value increase, etc. and its pretty easy to see the change.

Minor quibble--why compare median income to average prices? why not use median income to median prices?

I suspect that I'd qualify to buy my home today (despite the nearly 50% bump since buying it in 2019)--but I don't see how I'd be able to afford it as it'd be double if not more on the monthly payment. Meanwhile my income has been flat for more than a decade (my fault, I've not done much to improve it, but I have done what I can to keep it--extra hours and all).

 

[SC Maintenance]

Minor quibble--why compare median income to average prices? why not use median income to median prices?

I suspect that I'd qualify to buy my home today (despite the nearly 50% bump since buying it in 2019)--but I don't see how I'd be able to afford it as it'd be double if not more on the monthly payment. Meanwhile my income has been flat for more than a decade (my fault, I've not done much to improve it, but I have done what I can to keep it--extra hours and all).

Sorry, most of that is my typo - I corrected my original post while I still can. House and car prices are tracked as medians by the BLS.

The 401K and apartment prices are averages, those are less official numbers tracked by others.

Either way - costs of major expenses are up a lot more than wages.

 

[alarmguy]

Since I do respect your opinions and comments I will answer one more time.

So many people come on this site and say "everyone I know is doing really well, so the official data the BLS and Fed collect must be a lie". So OK, feel free to believe the BLS outright lies. Everyone seems to be biased completely by their own experience.

There have always been ambitious people and lazy people. The difference is that ambitious people in the past almost were assured of some minimum level of success - like owning a home or whatever.

Median household income in the last 5 years has gone from 68000 to 80,000 - so like 17.5%. But housing is up 50%, cars are up 40%, as are utilities, health care, college education, etc. Like I said - its just math.

Regarding hours worked, it may be possible. There are fewer hours worked per job - primarily by employer choice, but there are also way more people with 2 or more jobs. Also the job numbers do not include the gig economy - uber drivers, programmers working contract, day temp workers, etc - which there are more than ever but don't show up in any official numbers because there all W2, not employed.

I worked 60+ hours a week for much of my life - ask my wife. We have much to show for it also. I also know lots of people my age and much older that worked 40 hours and not one minute more, didn't seem particularly ambitious to me, and they have a house, and a car, and likely a pension or 401K.

Should people work harder now to overcome it? I would, because you have no choice. But I can look over my glasses and at least understand the frustration, rather than just dismissing it. Things are harder now than they used to be. Either suck it up and fail, but don't try to say its simply fiction because the math says otherwise.

So, truly all I will say about that now.
/ end rant.

Even though this is supposed to be an investment thread I been following the conversation. Obviously I dont agree based on all my past posts.
For example. Cars are not up 40% The money people spend on cars might be up 40% but you can buy a new car for 25k if you wanted to and if you cant do that you can buy a good used one for 15k
Utilities, housing, health care are region dependent, if you cant make it there move to a place where you can still buy a brand new home 2000 sq feet with all the luxuries for under 300k. Utilities and taxes in many areas are still stupid cheap.

So I dont disagree with your math per se. But the costs you mention are not nationwide and then I go back to my original statement. Life has never been more easy in the USA> The reason I say that is people want all the luxuries in life for the cost of yesterdays non luxury living. So they spend more on everything, heck most dont even cook their own meals anymore. The money they spend on eating is off the scale and would pay for a new 25k car by itself.

Gotta have AC on all year long, dont cut their own lawns, they pay for TV and sports entertainment, pay for internet at speeds they do not need. Walk around with premium phones, proof of that is iPhones penetration is 50% of the USA market, that means 40% of them should not own them. Then throw in the others that buy premium Android phones as an example.

Bottom line is most American consumers are completely irresponsible in the way they manage money. In fact they dont manage money. Walk in any Home Imrpovement store. Go to Appliances, how many people are walking to the back of the appliances to by the cheap washers, dryers, refrigerators and all other appliances? NONE because they have no control over what they spend. If they can afford to borrow the money they have the most fancy devices unheard of 25 years ago.

SO I will repeat, life has never been more easy. I do agree about some health care but that we can not talk about in here. If you didnt have health insurance many years ago you could buy catastrophic health plans for the big stuff but government intervention drove the cost of health care through the roof with requiring health plans cover all sorts of conditions and the buyer of the plan can not opt out of what they do not want to buy. EITHER way almost all companies, even Walmart offers decent rate health plans to their employees.

 

[SC Maintenance]

I'm rebalancing. I was recently down to 28% cash and bonds. Sold a proportion of a perfectly good US broad market ETF and a Canadian small cap mutual fund last week. I'm buying bonds. Heading for 40% cash and bonds.

In my opinion the markets are very high. And this is October. Enough said.

What duration / type of bonds? Not looking for advice - just general question - ie investment grade corporate, long dated treasury, medium dates sovereign notes - etc?

 

[JeffKeryk]

Median household income in the last 5 years has gone from 68000 to 80,000 - so like 17.5%. But housing is up 50%, cars are up 40%, as are utilities, health care, college education, etc. Like I said - its just math.

Forgive me for picking out one part of your post, but I would add that is more than just math. It's Capitalism. Winners and losers.

From Forbes:
Everyone knows there are winners and losers when capitalism is functioning at its best. Capitalist hardliners say that “the winners are those who are honest, industrious, thoughtful, prudent, frugal, responsible, disciplined and efficient. The losers are those who are shiftless, lazy, imprudent, extravagant, negligent, impractical and inefficient.” This is followed by the assumption that capitalism rewards winners and punishes losers. This is absolutist thinking that doesn’t acknowledge that many of these losers are defenseless children, retired people, and people with disabilities; who cannot work. Of course there will be laggards and abusers but many of these people (losers) are the most vulnerable citizens in the society who have no alternatives.


Is an appreciating asset a good thing or a bad thing? Depends on which side of the deal you are on.

I live in a property that is worth a lot. I paid much less. Do I like that? Sometimes. Don't ask me those hard questions...
All my neighbors tell me their children will not be able to live here.

 

[alarmguy]

..

I live in a property that is worth a lot. I paid much less. Do I like that? Sometimes. Don't ask me those hard questions...
All my neighbors tell me their children will not be able to live here.

and that is a good thing, the reason being too many people already want to live there. Capitalism at work. Plenty of places they can live and prosper at much less cost and might also be a big benefit to them. It's always been this way in modern society and what made us a world power. Not only that but no one starves in the USA and everyone who cant afford one, gets a free cell phone and VASTLY taxpayer subsidized health care... Actually because of all this artificial money being thrown around is what drives up the cost of everything to the working public.

 

[JeffKeryk]

and that is a good thing, the reason being too many people already want to live there. Capitalism at work. Plenty of places they can live and prosper at much less cost and might also be a big benefit to them. It's always been this way in modern society and what made us a world power. Not only that but no one starves in the USA and everyone who cant afford one, gets a free cell phone and VASTLY taxpayer subsidized health care... Actually because of all this artificial money being thrown around is what drives up the cost of everything to the working public.

AG, why is that? Is it the 330+ days of sunshine? Is it all the Teslas running around?

It's because of the opportunity; aka money. A small property like mine wouldn't cost $2M and sell in less than 1 week if there wasn't strong demand. And I guarantee it's not because any of those prospective buyers think I'm cute...

But you are spot on; it is Capitalism at work.

 

[ecotourist]

What duration / type of bonds? Not looking for advice - just general question - ie investment grade corporate, long dated treasury, medium dates sovereign notes - etc?

I'm Canadian and generally buy Canadian bonds so my comments are most relevant to that market. In recent years I've only bought broad market Bond ETFs. Sometimes there are advantages to corporate, short term and long term bonds but these things don't necessarily behave the way you'd expect so I just buy broad market ETFs and get it approximately right.

I bought bonds and strip coupons in the past but as a retail investor you don't get to buy at the best price, and the MERs on good Bond ETFs are really tiny (0.09% or 0.10%) and they buy at a better price than I can, which pretty much offsets the potential advantage of holding actual bonds. There's less work for me and simple is good.

Some years ago I bought significant amounts of two highly rated actively managed bond mutual funds which over time became converted into F class mutual funds. The MERS on these mutual funds are small by Canadian standards (range of 0.58 - 0.6%). They won't let me buy any more of these funds because I don't pay an annual percentage to my investment house. But I'm allowed to reinvest the dividends, so I just let those actively managed funds grow. With low cost active management they perform about as well as the index ETFs with their lower MERs.

 

[ecotourist]

AG, why is that? Is it the 330+ days of sunshine? Is it all the Teslas running around?

It's because of the opportunity; aka money. A small property like mine wouldn't cost $2M and sell in less than 1 week if there wasn't strong demand. And I guarantee it's not because any of those prospective buyers think I'm cute...

But you are spot on; it is Capitalism at work.

In Canada house prices are vastly different depending on location. In the allegedly most desirable locations (Toronto and Vancouver) house prices are incredibly high. Working people just starting out (including doctors, lawyers, teachers, engineers) can't afford to buy a house there. The people who live there bought their houses years ago when prices were more reasonable, they came from somewhere else with a boatload of money, or they have rich parents.

We live in greater Victoria where house prices are almost as crazy. A nice house (2500 sq ft) in a good neighbourhood would cost about $1,500,000. A very nice house might be more like $5,000,000. Young people of normal means can't get started here either. Fortunately we bought some years ago before this market went crazy. The major attractions here are the weather, the scenery, and the slower pace of life. And yes there are lots of Teslas running around.

 

[ZeeOSix]

Either way - costs of major expenses are up a lot more than wages.

It's like a dog chasing it's tail, the cycle never ends until the dog gets dizzy and lays down. People seem to always want more, more, more. For example, if they stop buying a new car every 2-3 years, and stop selling and buying a different house every 5-7 years then maybe demand would cut back and prices wouldn't keep rising. Demand of products fuels inflation - if everyone wants something, the price will just keep going up until people won't buy. I just want the $5 foot long to come back ... might need a recession for that to happen again.

 

[Dave Hess]

In Canada house prices are vastly different depending on location. In the allegedly most desirable locations (Toronto and Vancouver) house prices are incredibly high. Working people just starting out (including doctors, lawyers, teachers, engineers) can't afford to buy a house there. The people who live there bought their houses years ago when prices were more reasonable, they came from somewhere else with a boatload of money, or they have rich parents.

We live in greater Victoria where house prices are almost as crazy. A nice house (2500 sq ft) in a good neighbourhood would cost about $1,500,000. A very nice house might be more like $5,000,000. Young people of normal means can't get started here either. Fortunately we bought some years ago before this market went crazy. The major attractions here are the weather, the scenery, and the slower pace of life. And yes there are lots of Teslas running around.

We gave 3 of our kids (now adults) cash gift for the down payment to help them buy a house.
Zero money was given for a silly wedding….. they are NOT important.
Not 1¢ will be for a wedding.

Our 4th kid leaves the military in 2026 and will have to double the down payment cause of all the Covid cash drove up house prices. Trillions and trillions of cash affected everything.

When I bought my first house it was 4X my salary….. now it’s 9 or 10X a person’s salary.
A person making $70,000 here in Florida trying to buy a $700K house is very common.

 

[ecotourist]

When I bought my first house it was 4X my salary….. now it’s 9 or 10X a person’s salary.

I was the general contractor on our first house (1978 - 79). By building it ourselves it was about 5 1/2 X my income (as an intern) and then, before we finished it, about 1X my income (as a young doctor). Considering the hours I was working at that time, building a house was a very big undertaking.

When we started building money was really tight but then half way through I started to make a lot more money. So we ended up with a small house in a good neighbourhood that was really well finished with quality cupboards, quality flooring, etc.

The mortgage was 11 1/4%. We paid it off in 5 years and lived in it for 10 years.

 

[PWMDMD]

Bottom line is most American consumers are completely irresponsible in the way they manage money. In fact they dont manage money. Walk in any Home

I have staff making $26/hr who drive a more expensive car than I do, go on more vacations than I do, go out to eat more than I do, and who constantly complain about not having any money and they can't afford to buy a house. From our informal lunch time conversations I know for a fact they feel “left behind”. These are people making $26/hr not including their other paid benefits like health insurance and 401k with high school educations and no other formal training in their mid to late 20s. I have other staff who make the same who have not only purchased homes, but one even built a modular home in NE CT. They drive older cars that are paid off and are frugal with their money but living life. I have a colleague who makes a similar amount to me and he has three kids and no money saved for college. He lives in a nicer town closer to Boston in a home 3x more than mine that was already beautiful inside and out and in the past 3 years, he put in a $125k pool and remodeled the kitchen for $80k. He had a 2016 F150 with 100K miles in great shape and just bought a Bronco for $75K. He has a new $4000 John Deere mower. I could on and on. He lives paycheck to paycheck.

If I didn't pay myself for 3 months I'd be ok. I live in a house that relative to my income was about 1/3 of what I would've "qualified" to purchase in a nice town, but not one of those really nice Boston suburb towns. My mortgage + taxes is <10% of my monthly income. I recently paid off the cars and an education loan that freed up an additional $2500 per month and the last thing I'm going to do is go out and buy new cars when I have 2019 with 60K miles on a 2020 with 55K miles. Most of the furniture in my house are hand-me-downs from my MIL who has an auction habit - none of it was expensive. Most of my kid's clothes growing up were hand-me-downs from their cousins. I bring lunch from home to work every day. I don't replace phones, electronics, appliances, lawnmowers, snowblowers, etc, until they don't work anymore. I have two bathrooms that are woefully outdated but I also have one kid in college at $55k per year, one who is a senior and one a freshman in high school, so they can wait because I have bigger fish to fry. I don't wake up at night worried about paying my bills but I also don't waste money.

 

[ecotourist]

I have staff making $26/hr who drive a more expensive car than I do, go on more vacations than I do, go out to eat more than I do, and who constantly complain about not having any money and they can't afford to buy a house. From our informal lunch time conversations I know for a fact they feel “left behind”. These are people making $26/hr not including their other paid benefits like health insurance and 401k with high school educations and no other formal training in their mid to late 20s. I have other staff who make the same who have not only purchased homes, but one even built a modular home in NE CT. They drive older cars that are paid off and are frugal with their money but living life. I have a colleague who makes a similar amount to me and he has three kids and no money saved for college. He lives in a nicer town closer to Boston in a home 3x more than mine that was already beautiful inside and out and in the past 3 years, he put in a $125k pool and remodeled the kitchen for $80k. He had a 2016 F150 with 100K miles in great shape and just bought a Bronco for $75K. He has a new $4000 John Deere mower. I could on and on. He lives paycheck to paycheck.

If I didn't pay myself for 3 months I'd be ok. I live in a house that relative to my income was about 1/3 of what I would've "qualified" to purchase in a nice town, but not one of those really nice Boston suburb towns. My mortgage + taxes is <10% of my monthly income. I recently paid off the cars and an education loan that freed up an additional $2500 per month and the last thing I'm going to do is go out and buy new cars when I have 2019 with 60K miles on a 2020 with 55K miles. Most of the furniture in my house are hand-me-downs from my MIL who has an auction habit - none of it was expensive. Most of my kid's clothes growing up were hand-me-downs from their cousins. I bring lunch from home to work every day. I don't replace phones, electronics, appliances, lawnmowers, snowblowers, etc, until they don't work anymore. I have two bathrooms that are woefully outdated but I also have one kid in college at $55k per year, one who is a senior and one a freshman in high school, so they can wait because I have bigger fish to fry. I don't wake up at night worried about paying my bills but I also don't waste money.

And that's how a person gets ahead and retires rich.

We did much the same thing. As one of my surgeon colleagues remarked, "What, you live beneath your means." Guilty as charged sir.

We had a very nice, very comfortable lifestyle and never felt the need to spend more, even as I made more. Our savings rate by the end of my career was remarkable.