The “best” place to put your money NOW for 2012
I have to admit up front that if you’re reading this blog based on the title, you’re in for a bit of a surprise, and I hope you won’t feel too bad about being hoodwinked.
Articles with titles like this are almost obligatory in the financial press this time of year. If you’re reading this, you know why: They get people to read. Everyone wants an inside track on what’s going to be “hot” next year.
Understandable enough. Of course the real question is whether you’re truly gaining anything in these articles. Sure you’re getting 30 minutes or so of a relaxing/interesting read and an excuse (“I’m working on the finances!”) for carving some quiet time out for yourself over the holidays. But getting any investment insight is a different matter. Hopefully, this article will be different.
When it comes to year-end predictions, as with subjects from sports to fashion, some investment fortune-tellers will get it right, and some will get it wrong. It’s illustrative to revisit last year to make this point. For example, one leading personal finance magazine counseled the following in its issue on investing for 2011: “Tap into Emerging Markets for Big Profits.” As you may know, emerging markets have had a pretty bad year in 2011, down 20.6% as of Thursday, December 29 (based on the MSCI Emerging Markets USD Index, as reported by Morningstar).
Some will get it even more wrong. Last year, one popular business magazine’s 2011 investing feature included a six-page profile of a particular fund’s founder. Unfortunately for anyone who interpreted this spotlight treatment as a reason to invest in the fund, the fund was featured in another story in October 2011 in a different publication, highlighting some major performance hiccups and the departure of a co-manager. Ultimately, the fund’s 2011 performance up to this point has been very poor (as of December 29, it was down 32.2% in 2011, according to Morningstar). This magazine also featured three funds (one large growth, one small blend, and one world stock) in its “Funds to Watch” in 2011 section that, as of December 29, were down 4.05%, 1.05%, and up 1.6%, year to date, (according to Morningstar) respectively—making you hope readers just “watched” and didn’t invest.
Of course, it’s easy to be a critic, especially in hindsight. And I’m sure the commentators here will find someone that predicted a big winner in 2011. To be fair, one of the magazines I’m picking on here also featured gold coins and bullion on its cover and throughout its pages. While a bit of the bloom has recently come off that flower, gold up to this point has been a winner again in 2011. (I’ve written about gold before, and while there’s been a lot of up and down in the interim, my views remain the same.)
Which brings us to what might happen in 2012. There is some early indication that “income-generating” equities may be something you’re going to hear a lot about. By all means, read, learn, and be entertained. But when it comes to investing your money, be careful. As my colleague Joe Davis has counseled, stocks aren’t bonds, and there is no return (income or capital gain) without risk.
My view is that the best place to invest in 2012 has nothing to do with the calendar, is the same place as it was in 2011, and where it will be in 2013, 2015, 2025, and 2100: a low-cost, broadly diversified portfolio of investments, with an asset allocation and expected risk profile that match your risk tolerance over your investment horizon. (I still haven’t figured out what a catchy cover photo for this might look like … suggestions?)
I’d add at least two other things to keep in mind as you peruse the year-end financial press. First, whether it’s right or wrong, anything you are reading on a website, blog, magazine, or newspaper, or seeing on television, is also being seen by many others. Be aware that tools are available now that leverage search engines like Google, enabling quantitative investment managers/”hedge funds” to measure how often a fund or stock is mentioned in the press or on the web and to potentially take a position before you can put down the eggnog and get around to getting in on a “hot tip.” So be warned.
Second, it really doesn’t matter who was right or wrong in 2010 about 2011. My five-year-old might pick a winning fund or category for 2012. The issue is whether there is any consistency in value added over many years, after adjusting for costs and additional risk. In reviewing last year’s “where to invest” articles, I didn’t see any serious discussion of track records. Without that info, the only benefit I get out of these magazines is to help me think about what questions I’m likely to get from clients and what real analysis I need to do in the upcoming year.
In fact, perhaps the most exciting thing about the turn of the year from the point of view of a Vanguard financial analyst such as myself is that another year of performance data piles up—giving me even more evidence to use in tests of how hard it is to consistently beat the market.
Happy New Year 2012!
Notes: All investing is subject to risk. Past performance is not a guarantee of future results. Diversification does not ensure a profit or protect against a loss in a declining market.
HI John, As you note investing is not easy and eveveryone is looking for the hot stock or fund. I have been investing for about 15 years. Over the years i have been in different funds and stocks. I have made and lost money in both,but i have had my best performance with the low cost funds with your company. I have also found that it takes many hours of research to be a good stock investor as you well know.I do well with investing now but it is a job to get their. I like vanguard and trust this company.I do most of my investing in funds and stock with vanguard keep up the good work. Bill
Every person and situation is different. Look at age, time between investing and selling. Study the returns for days, weeks, months, years, or decades, depending on how much, and when, you want to invest, and when you will sell. There are no guarantees. All investing is similar to gambling. Knowledge and experience surely help. Don’t go in blind. Study, learn, seek advise, and start the step by step process. It can be fun and exhilerating, or devastating. Learn knowledge, practice, and seek wisdom. My stock, bonds, C.D.’s and mutual funds investments go back over four decades. I have had gains and losses…thank goodness, more gains than losses. Buy more stocks, or stock mutual during your younger years, then more balanced funds, and bonds, as you get older. About 35% of my investments are in stocks, 55% in bonds, and 10% in cash. I feel quite comfortable with this balance for me. I would never put 100% in any investment.
never been poor???????????
Since I am a novice, what have you chosen as your picks for your balanced approach? I have money I moved to protect it for my kids who are adults but are my beneficiaries.
I agree the best investment are and appear to be Bonds, at least for 2012. This is due to international instability, a Presidential election, and the continued position that Corporate America continues cutting costs, maximizing labor efficiencies, tightly controled demand and output ratios, thus increasing profits without investing for growth. 2013 will be a growth year regardless who is elected since large cash balances within companies will be loosened as a more predictable political posture is defined here at home. The unpredictable aspect will be international developments in the Middle East, SE Asia and China. Economic trends in Europe certainly will be an ongoing factor. Bonds are the best investment for now, with traditional dependable stocks within Telecom, Energy, and limited manufacturing will lead the way for slow but dependable investment returns. Yield if followed correctly 5-7%.
Great article and very true.
There was mention even in this article of the dividend-paying equities. Bonds are selling at artificially low yields because of government policies, and there is going to be a day someday along the horizon when interest rates will rise.
I have been investing for a long time. I have never seen a cyclical down turn in which dividend paying stocks did not go down as much as others. “Wealth redistribution” is accomplished not only by raising taxes on the middle class, but in reducing interest rates to levels where classical debt instruments(CD’s, bonds, etc.) pay interest rates that are lower than inflation. This forces retirees to go into riskier instruments where they may lose principle which they may need for living expenses. When you hear, “increase taxes on the rich,” what they really mean is decimate the middle class to the point that they are entirely dependent upon government and will vote for those who advocate big government.
I am not sure anymore where ones money is invested, it makes little difference. Until the US economy picks up as well as the World economy. Meanwhile I picked up about $40,000 in distributions which was plowed right back into my portfolio. So it’s really the same game: don’t put all your eggs in one basket and keep a good amount of cash.
SOOOOO when will the equity funds have a return of even 5%…and as we all know Bonds are very rich at this time, with the 10 year at less than 2% bond values have no where but to go down!
The S&P is a fund Hedge Funds love to PLAY with, which makes equities hard to find a sold ground. The S&P ended the year at about 1250…with profits per share at $100 or so, I would say the Index is under valued by 15%, YES ? I would hope 2012 brings us a stable Europe..3% interest on the 10 year mote, and 15 P/E in the 500 fund!
HAPPY NEW YEAR!
Good article; helping to save us from ourselves, perhaps. I had always believed that if I read about something “Hot” that it was probably a little late for my participation – just as “If it seems too good to be true, it probably is”. Thank you for the confirmation. I also agree with your “attitude” about Gold. Why can most of us not see a bubble right before our eyes?
you are absolutely correct… i did not like the misleading lines which brought me to this page.
As a representative of Vanguard, and supposedly our advisor, i actually thought you may have a suggestion (note: I said suggestion) of where to consider putting some of your investments for 2012 within the Vanguard family. Wrong again!
What’s going to be quote hot unquote in 2012? —probably the asset which crashed most heavily in 2011. For my money the answer is always interest and dividends compounding away, monthly or quarterly.
Most likely going almost nowhere until Nov,2012 elections. At least two of the 2008 enablers are gone, meaning Mr. Frank & Mr. Dodd. We in New York are stuck with one of the others, Mr. HUD himself Andrew Cuomo. Watch markets take off the day after the elections, i hope. In God we Trust. Keep the faith Vanguard.
Your references to Dodd and Frank reveals the reality distortion field that some continue to spin to divert attention away from the part played by the private sector. Until you are willing to admit that bad actors in the financial industry had major culpability in the meltdown and be willing to support the kind of guardrails the British are enforcing to salvage their banking system, we will not fix this problem. What distressing is that so many believe it was Fannie and Freddie alone in this. That is simply willful denial. The fact that we can’t get anyone confirmed to head the agency set up to protect us all shows how far we have to go to fix this situation. Bankers would like nothing better than to return to their previous practices and the ill-gotten gains they’ve enjoyed at our expense.
What about appaisers forced by mortgage brokers to over appraise to get business. Tax codes pushing home prices up by subsidising interest on mortgages, and rewarding leverage and penalizing thrift,
Very good article, with an appropriate dose of ‘common sense’ towards investing (as opposed to trading). It seems the ‘hot topic’ in many publications is directed at dividend paying stocks as if these will be the income panacea for 2012 and perhaps income investors might wish to hold a percentage of their equities in them, but certainly not all. Disciplined balancing of risk (my personal tolerance) with long term track records and low fees are, to me, the keys to sustained success.
An investment that consistently grows (even at 2 to 3%) is of more importance to me than an investment that is up 20% one year and down 20% the next. Everyone has a different idea of what the future may bring as far as investing goes. IMO, being conservative with the majority (but not all) of your portfolio will more often than not produce more solid gains than ‘throwing darts’ at the equities spectrum….which is the same as guessing, or heeding the advice of the author writing about the next ‘hot topic’.
If these writers are so adept at predictions of future returns, why then do they still write for a living and not sit in some castle dispensing wisdom? Caveat Emptor.
I would take the 2 or 3% in 2012 before elections every time ! I agree ! Good luck everyone and God Bless!
i agree 100$%. And am doing the same.
A catchy illustration that symbolizes the risk involved in investing could be something like…
“Get it all right = a pot of gold at the end of the rainbow”….whereas “Get it wrong = skull and cross bones”. Big difference.
Excellent article!
not very thought provoking…….do not go out on a limb. HIDE and say l i t t l e . It will not come back to haunt you. The writer shoild have saved his energy until he has a definite idea!! HAPPY 2012
I agree!
I don’t
–A very good article as usual by John. ( I think I will bring in the New Year by checking my current Asset Allocation and then go from there .)
Compellingly Clever!!!
Suggestion for the cover photo for your “hot tip”diversified portfolio: a basket brimming with wholesome good food- vegetables, cheese, fruits, fish, nuts, bread, meat. Plain good fare from every food group.
Thanks for keeping us on track with your timeless advice. It is easy to get swept up in the latest enthusiasms.
My college English professor would have labelled your remarks as
“excess verbiage.”
Verbiage – Definition and More from the Free Merriam-Webster …
a profusion of words usually of little or obscure content <such a tangled maze of evasive verbiage as a typical party platform
useless
We 99 percenters should invest only long term in government-backed bond funds. It is unfair for us to compete with congressmen, corporation executives, wall street sharpies, etc. who have access to advance knowledge of the market.
“…a low-cost, broadly diversified portfolio of investments” – wow. Who could have guessed?
We agree strongly with the first three comments. Nobody knows the best place to have your investments in the future so we have chosen a conservative portfolio 70% bonds,25% stocks and 5% cash for 2012. This portfolio yielded a 7% gain for 2011 which we are pleased with, our only concern is Bond performance going forward.
Based on our experience stock funds are a pure gamble because individual stocks are manipulated in various ways to the advantage of others and we are just placing a bet on black or red. We just hope that the Bond market doesn’t suffer the same fate as Stocks. The Vanguard Website has been an excellent place to get educated on investing and we suggest that all investors should spend time studying the information they provide.
Very well said.
To quote a past financial media person, (In regards to financial magazine information).
“You can make more money selling the information than using it for your personal investments.”
Nice to read an article based in reality. But you’re not selling publications like the magazines you allude to. Thanks for the reminder about investing for the long haul.
“There is nothing new under the sun.”….and I believe that this applies to investing as well as other areas. Pick the “correct” allocation range for equities and income generating instruments, and stick with it.
My take away: Take the bus and leave the driving to us!
I have to admit I was sucked into reading this…my first thought was “wow this is a departure from the usual Vanguard asset allocation mantra”…imagine my disappointment.
However I have to admit asset allocation is what it’s all about. I’m 54 and currently 60% equity 30% bond 10% short term..and diversified within each asset group as well. 2011 wasn’t all that bad if you covered all the bases.
The only thing that’s constant is change, so I’m always questioning whether my allocation and my diversification in each group is correct. Vanguard funds and more importantly the information available on this site help me keep my sanity.
As I look at my investment returns under the Performance tab, what I need most for Vanguard to provide are:
1. 10-year annualized returns- in years past, this was available
2. A line on the chart tracking inflation over the selected time period.
The second is important, because I need to know if I have actually lost purchasing power with the return I am getting on my roughly 50% stock/50% bond portfolio.
I might tweak my asset allocation if I could see that I needed to be more/less aggressive.
Vanguard, please help us here!
… and even 20-year returns under the Performance tab. Vanguard emphasizes having a long-term horizon. So, why show just 1-year, 5-year, and 10-year returns?
I second the motion for an inflation line, and agree that both both longer and shorter time horizons would be useful……….I use the shorter time frames (1 mo, 3 mo, 6 mo, ytd, etc. to get a feel for momentum). I don’t necessarily adjust, but get some comfort from more current information. The major advantage of terms longer than 10 years is to get some idea of how the fund performed in similar previous markets (not always an easy thing to do given that fund objectives and benchmarks are likely to have changed over a 20 year period). Ideally, this information could be provided in some direct form, perhaps even with suitably converted data and/or an advisory indicating that the comparison would be misleading, etc.
Bravo! Bravo! Hip hip hooray!
Hi John:
Great and timely article.
I posted it on http://www.bogleheads.org.
Happy New Year!
To the bashers out there, maybe the article was hokey but it wasn’t wrong. To invest other ways is to make bets based on what you read that sounded good at the time. But you will agree that all bets are risky. Bets are not necessarily bad (some people make fortunes on them) but for virtually every reader of a Vanguard post, they are blind bets. The outcome of a blind bet is random. You can pick a great stock or a great sector once or twice, but not consistently. My advice, since you were obviously looking for some since you went to this article, is to invest in what you know and control which is yourself, your profession and your community. Sure, park some money in a money market and some in stocks and bonds, but not your entire nest egg. Nobody knows the outcome of the stock market over any particular period of time, there are market influences far beyond anyone’s control and Wall Street is flush with scammers, not a good combination. Take the advice of the article’s author and buy a diversified portfolio of low cost Funds with long histories and consistent management, replace them when the managers change and otherwise don’t watch them or you will go crazy.
Excellent article. Clearly a few disappointed comments posted were obviously from people who felt they were misled by the title! But that was precisely the point of the entire article. Funny, how people want quick “invest in this, not that” type advice from total strangers and then hope to capitalize on it.
While investing and taxes are related, it would be nice for (some) posters to refrain from politicizing good forums such as this. What we have to remember is that there are some very good, very well respected and definitely well-meaning and well intentioned economists on both sides of the tax/wealth redistribution issue. They can’t obviously ALL be wrong or ALL be right at the same time. Which means that the truth is somewhere in the middle and therefore it will be best served if we DO NOT bring politicians’ rally cries or campaign slogans to good forums such as this.
This should rattle you! I’m a former trust company manager (investments, income and estate taxes, accountings and administration), author of The Trustee’s Guide, and a retired Certified Financial Planner, so why am I, a widower 77 years old invested 85% in diversified Vanguard funds and 15% in Vanguard’s Prime Money Market Fund? I sure wouldn’t recommend this arrangement to anyone else my age. However my income from other sources is sufficient for my modest living standard, my kids will get plenty of money from my life insurance and other sources, and I would like to help out a couple of needy friends at my death. So I’m playing with their money, basically, and whatever they get, it will be unexpected. Good article, John, but each to his own. Everyone has a different risk tolerance and a different idea about how to use money.
All right, I admit I was looking for some “hot” tips. So I read it. It was a great article and said quite a bit about investing. Thanks for sharing it.
I believe most people who read this article were looking for some more specific advice. Yes, I include myself among the ‘hoodwinked’. However, the author does remind us of what at least some of us have already figured out on our own: investing is gambling. Do as much research as you have the time and opportunity to do. Still, the possibility always exists that something no one could predict will jump out of the shallows and turn everything sour overnight. Also, I do believe that there are some individuals who have the positioning to know more and act more promptly than the average, middle class amature investor. So, I think it was worthwhile to be reminded of the harsh truth about investing.
Well, I think most of us would have been disappointed if Vanguard did not address the outlook for 2012 in anyway at all. So, let’s place our bets and press on into the fog of uncertainty that always strouds the path forward.
The article talked about what we do not know. That is a safe and true statement. The logo might be a ship in the dark.
All that I learned after reading all this is that everyone is clueless including those who make their living by advising others on investments. They are as much in the dark as the rest of us.
This piece lacks substance and reinforces what we already know about investing. There is no crystal ball and this precipitates diversifying your portfolio. We all need to be skeptical and question anyone that proclaims to have the “answers” for successful investing.
good article
A whole bunch of us “regular folk” are quite frustrated with the low growth of our retirement portfolios. I believe the S&P 500 Index for the past 10-12 yrs is basically flat. Cash & CDs are earning zip. Bonds seem risky to me as interest rates have only one way to go and that is up. I’m about one step away from believing the whole system is rigged. I have worked and saved my entire life and have about $600,000 saved up and all I’m doing is treading water. Inflation is higher than the CPI. I’m slowly sinking. I thought that earning 5% from stocks, bonds and cash seemed reasonable but it ain’t happening for me. A whole bunch of us simply cannot afford to take any more hits on our saved capital. Very, very frustrating.
Amen Brother!!!!!!!!!
I’m not the gambling type so I gleaned information from Vanguards website to find funds that weathered all the bad news and bad actors since 2000. I am pleased with the funds I chose which have averaged about 10% annual returns in the past 3 years. The advice in the article with the misleading title is good advice.
“… low-cost, broadly diversified portfolio of investments, …” I’d change i to:
“… low-cost, broadly diversified portfolio of passive investments, ..” and then it wold be perfect advice.
A fantastic article…well written…and so very, very true. After a few years of following these “predictors of fortune,” I have learned that very, very few of them have any more insight into the future of the markets than my dog does.
I like this article because it stimulates thinking. But so many of you seem to be just critical. Like armchair quarter-backs living the fantasy “you know better”. Thing do constantly change yes like the roll of the sea sometimes you ride the swell sometimes you dip into the trough, but where is the current headed? It’s OK to take a little longer to get to a safe landing. The important thing it seems to me is find what you personaly need to do to keep afloat. ie bigger life jacket…. The advice I am getting here is get in for the long haul. I’m reminded of a world class mountain climers advice. “Don’t assume just because you can fallow you can LEAD”. One foot in front of the other you don’t have to be first, just cross the finish and you will be a winner . Measure aginst YOUR past not others. remember there is more than one way to skin a cat REALLY, even a BIG FAT CAT like the the market.
……..signed, John Bogle.
“……..signed, John Bogle.”
Not quite as I don’t believe Bogle would agree with the active funds Vanguard is now pushing.