[HN Gopher] U.S. stock market returns - a history from the 1870s...
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U.S. stock market returns - a history from the 1870s to 2022
Author : getToTheChopin
Score : 299 points
Date : 2023-01-06 16:25 UTC (6 hours ago)
(HTM) web link (themeasureofaplan.com)
(TXT) w3m dump (themeasureofaplan.com)
| lvl102 wrote:
| Would be wise to look at stock market side by side with bond
| market.
| theuri wrote:
| Well - last time the pattern looked like this (the years around
| ~1917) it eventually led to WWII. So will we see a WWIII in the
| next 5-20 years?
| DwnVoteHoneyPot wrote:
| All that long-term data and presentation is lovely and all, but I
| disagree with the conclusion of "buying and holding has been a
| simple and straightforward way to build wealth".
|
| Saying investing $1,000 in 1871 would be $22M now doesn't help
| me. Saying $1,000 in 1969 is now $23K doesn't help me - I wasn't
| alive then. It's not practical.
|
| I didn't have $1,000 of savings until my late 20s. After paying
| for bachelors and masters, I had to borrow $500 from friend to
| eat and live until next pay check. Then car, house, furniture.
|
| And if that $1,000 I invested in late 20s turns into $2,260 in 20
| years - whoop-dee-doo, who cares.
|
| Conclusion should be "buying and holding has been a simple and
| straightforward way to _store_ wealth ". But not going to build
| wealth unless I'm active - building resume, building business. In
| addition, I might as well take that $1,000 and swing for the
| fences and turn it into $10,000 or more looking for the next
| AAPL, GOOG etc. like venture capital.
| anon23anon wrote:
| I obviously can see your logic but I still think it's your best
| bet. I also think it's important to point out there's an order
| of importance. If you have low or no income you're first
| priority needs to be getting a higher paying job and or up
| skilling to enable you to get a higher paying job. From there
| assuming you got a decent job most of us will have a 401k
| option. You get a tax deduction, tax free growth and most
| importantly most of us get matching employer contributions of
| some form. If you put in enough to get the full match over the
| course of you're career you're going to end up ahead. If you
| have an HSA sames goes there. If you have a low enough income
| to qualify for the deduction on an IRA same goes there. Oh yea
| did I mention 529 for your kids future? Combining investing w/
| special accounts that can grow tax free and offer tax
| deductions are going to maximize you're chances of overall
| success but again I agree all this is kind of riding on you
| being in a decent paying field and if you're not already that
| should be your first priority.
| DwnVoteHoneyPot wrote:
| Yes, definitely need to optimize for the employer
| contributions and tax savings, but that wealth is still from
| the job. I guess disagree with the "look how much money
| you'll have from compounded returns!"... the timelines are
| too long to be practical in our life spans.
| pacetherace wrote:
| What you are overlooking is the risk aspect. If you are
| guaranteed a return of say 6 to 7%, you are looking at doubling
| the money in about 10 to 12 years. That kind of assurance means
| you can invest much more with specific goals in mind.
|
| This is the reason people take a more balanced approach where
| they split their investments in say a 70-30 or 90-10 ratio and
| put a smaller percentage in short term high risk - high return
| investment.
| getToTheChopin wrote:
| Generally, the idea is to invest each year, and hold those
| investments over a long period of time.
|
| You can use this calculator to run different scenarios.
|
| https://themeasureofaplan.com/net-worth-scenario-tool/
|
| Example inputs: a 25 year old with a starting net worth of $10k
| and who invests $7k per year over 40 years, at a 5% average
| annual return.
|
| Output: net worth of $915k at age 65. This provides retirement
| spending of $37k per year (using a 4% safe withdrawal rate
| assumption).
| DwnVoteHoneyPot wrote:
| If I start at 30 years old (as per my initial comment) with
| $10K and $7K per year, it shows $687K. At 4% withdrawal rate
| that is $27K per year in retirement. Of that $687K, I would
| have kicked in $255K of it as principal. Sure it's something,
| but that's over 35 year time frame. Wealth is going to come
| from other sources.
|
| Doesn't really fit the "do what Warren Buffett did and be
| wealthy" narrative that people imply with buy-and-hold.
| Buffett made concentrated bets. He effectively used leveraged
| (using insurance premiums) to make bets. He prefers to be a
| business owner instead of shareholder (i know it's a subtle
| distinction). The Warren Buffett quotes people use to justify
| these strategies is misleading.
| getToTheChopin wrote:
| Warren Buffett is one of the greatest investors of all-
| time.
|
| The average Joe can't expect to re-create his returns.
|
| There's a reason why Buffett regularly recommends (and bets
| on) the S&P 500 as a solid investing strategy: https://www.
| investopedia.com/articles/investing/030916/buffe...
| compumike wrote:
| I think a useful analogy for engineers is that companies are
| machines, a black box that takes some amount of resource as
| inputs, and turn it into some outputs.
|
| If we collapse the vector of those inputs (such as labor,
| materials, capital) and outputs (products, services) to a single
| unit such as "dollars" by which we measure those things, then any
| sustainable (i.e. profitable) business creates more output than
| input.
|
| Personally, I like owning companies, because I like owning black
| boxes that take money in and produce more money out. :)
|
| I do think the long-termist view, which this page promotes,
| raises several questions:
|
| Do you believe that companies will, on average, continue being
| profitable in the long term?
|
| Or do you believe that in the long term, profit margins drop to
| zero?
|
| If capital is abundant, can companies remain profitable without
| there being a positive return on capital? (I.e. do those profits
| flow to entities other than shareholders?)
|
| Does a "steady state economy" exist?
| https://en.wikipedia.org/wiki/Steady-state_economy And if so, are
| steady-state corporate profits zero? Is there a "tendency of the
| rate of profit to fall"
| https://en.wikipedia.org/wiki/Tendency_of_the_rate_of_profit...
| or is this in some degree compartmentalized with the turnover of
| industry over time?
|
| I do appreciate the graphs on this page, especially the rolling
| 5/10/20 year ones. When I get some free time, I may adapt that
| concept for my side project https://totalrealreturns.com/ which
| lets you graph the inflation-adjusted, dividend-reinvested
| returns of any publicly traded stock, ETF, or mutual fund.
| boole1854 wrote:
| > Or do you believe that in the long term, profit margins drop
| to zero?
|
| > If capital is abundant, can companies remain profitable
| without there being a positive return on capital? (I.e. do
| those profits flow to entities other than shareholders?)
|
| > ...are steady-state corporate profits zero?
|
| I learned the answers to these questions from economist George
| Reisman. I recommend his book _Capitalism_ , specifically
| chapters 16 - 17, where he explains the answers and how he
| arrived at them. The book is available for free in PDF format
| here: https://capitalism.net/CAPITALISM_Internet.pdf
|
| In short, the net amount of profit in the economy every year is
| the sum of the "net investment" plus "net consumption" during
| that year. "Net investment" and "net consumption" are both
| precisely defined in the text. Net investment is related to the
| changes in money supply and to the difference between the
| marginal productivity of capital versus the current rate of
| profit. And net consumption is related to the consumption
| behaviors of capital owners and the government. There is no
| general tendency towards a zero rate of aggregate net profit
| since there is no general tendency towards aggregate net
| investment + net consumption being zero.
| getToTheChopin wrote:
| You're raising very valid questions. It seems to me that we'd
| need to have continued breakthroughs in science, technology,
| medicine, etc. in order to drive sustainable increases in
| economic growth.
|
| Forecasters have predicted the end of innovation at many
| points, but humans do seem to have a knack of finding something
| new and valuable.
| kridsdale1 wrote:
| I don't think we need to worry about steady state economics as
| long as we are on Earth. Ultimately the whole economy is a
| proxy for measuring the flows of transformations of useless
| material and energy in to useful ones. The sun shines every
| day. That makes crops, which drive labor. Labor writes
| software, profits go up. The true input is the hydrogen cloud
| around the sun.
| theandrewbailey wrote:
| I remember people advising to buy things with loans and invest
| your cash because your returns are more than your interest rate.
| If you don't need that money for 10+ years, that _might_ make
| sense, but when things go south, your money (and probably your
| income) will be gone, but you 'll still have payments. (That's
| assuming the money is _actually invested_ , and not frivolously
| spent.) Advice like that is why Wells Fargo, Bank of America, and
| JPMorgan are rubbing their hands in their shiny towers. F***
| them.
| morninglight wrote:
| A Fourier transform on the data is left to the reader. It reveals
| soooo much more.
| fallingfrog wrote:
| Don't keep us hanging!
| getToTheChopin wrote:
| Any quick insights to share?
| LanguageGamer wrote:
| Since I don't see anyone else mentioning this:
|
| The geometric mean (6.9) is all that really matters for
| investors, not the arithmetic mean (8.4) - the arithmetic mean
| under-weights the importance of negative years to long term
| performance.
|
| For example, if the market is down 20% one year and up 20% the
| next year, the arithmetic mean will be 0%, but you'll be down 4%
| (0.8*1.2 = 0.96), which is reflected in the geometric mean of
| (about) -2%.
| [deleted]
| chazeon wrote:
| Interesting, I am looking at (1+x) * (1-x) = 1 - x^2 < 1
| fallingfrog wrote:
| Correct, because we're averaging together things that are
| multiplied, not things that are added. Arithmetic mean is
| rather meaningless here.
| getToTheChopin wrote:
| The arithmetic mean gives you a sense of the return you can
| expect by investing in the market for a single year.
|
| When investing over multi-year periods, the geometric average
| is more relevant.
|
| You can see the impact on this chart, where the average
| return (and volatility) drops over longer time periods:
| https://themeasureofaplan.com/wp-
| content/uploads/2023/01/Rol...
| Retric wrote:
| Depends, dollar cost averaging shifts things around. For a
| typical 401k style investor having down years mid career
| improves returns at retirement, but then increases risks in
| retirement.
| aynyc wrote:
| Not completely as typical 401K investor would change their
| allocations from equity to non-equity.
| kortilla wrote:
| No, the typical 401k investor does not change their
| allocations.
| theandrewbailey wrote:
| Target-date retirement funds automatically do.
| adastra22 wrote:
| And even these days the typical investor probably uses a
| financial advisor, who would do such fund reallocation,
| even if they don't use target date funds explicitly
| (which they should).
| tunesmith wrote:
| The average investor also has less money to invest during
| down years though.
| scarface74 wrote:
| The "average" investor gets paid cash and not in stock.
|
| The public tech company employee has less to invest because
| a large portion of their income is in stock.
|
| The private tech company employee is screwed because
| statistically, they have equity that won't amount to shit
| in a bull market let alone a bear market.
| loeg wrote:
| > The "average" investor gets paid cash and not in stock.
|
| Not if they're unemployed, which is more likely in down
| markets.
| majormajor wrote:
| The "average" investor is in jobs less hit by typical
| recession/down market impacts, since the odds of a
| hospitality worker or barista having a retirement account
| in the first place is much lower than the odds of a white
| collar employee.
| Retric wrote:
| The point of comparison would be average reduction in
| investment vs average reduction in stock price. It's true
| people invest less, but stocks take much larger drops
| than the reduction in the workforce.
| scarface74 wrote:
| We have an existence proof that the stock market being
| down is not correlated with widespread unemployment
| Godel_unicode wrote:
| So far, in this one specific downturn, sure. There is
| however a strong historical correlation between market
| downturns and widespread unemployment.
| scarface74 wrote:
| https://blog.tornado.com/the-stock-market-is-not-the-
| economy...
| Godel_unicode wrote:
| That's not responsive to what I said. It's a snappy one
| liner though, so I guess cool?
| scarface74 wrote:
| https://seekingalpha.com/article/4170913-unemployment-
| rate-a...
|
| > An inverse relationship between level of unemployment
| and forward stock market returns. In the current quintile
| (2.5% to 4.4% unemployment), the average S&P 500 return
| over the following year is 5.6% versus and average of
| 12.7% in all periods. The best returns historically have
| come after periods of high unemployment
| tunesmith wrote:
| I found a woman who is taller than a man, which is an
| existence proof that being a woman is not correlated with
| being shorter than men.
| scarface74 wrote:
| "Markets are not the economy"
|
| https://www.jpmorgan.com/wealth-management/wealth-
| partners/i...
| roperj wrote:
| Are you arguing that the stock market is not correlated
| with unemployment? That's a weird and plain stupid hill
| to die on because anybody can disprove it with 3 seconds
| of googling.
| scarface74 wrote:
| https://seekingalpha.com/article/4170913-unemployment-
| rate-a...
|
| > An inverse relationship between level of unemployment
| and forward stock market returns. In the current quintile
| (2.5% to 4.4% unemployment), the average S&P 500 return
| over the following year is 5.6% versus and average of
| 12.7% in all periods. _The best returns historically have
| come after periods of high unemployment_
| feet wrote:
| So why don't you disprove it?
| [deleted]
| bunabhucan wrote:
| The average investor includes people who lose their jobs
| during downturns.
| scarface74 wrote:
| What's the unemployment rate - right now?
| YPCrumble wrote:
| How would that increase risks in retirement?
| Retric wrote:
| When spending down money you get the reverse of cost dollar
| averaging. In a good year you might sell say 1,000 shares
| but in a down year you might need to sell twice that to
| take out the same money. This means more of your shares are
| sold in down years than good years.
|
| This is why people say to increase the bond ratio in
| retirement, but that also reduces expected returns.
| cj wrote:
| It shouldn't if you transition to heavier weighting of
| cash/bonds as you approach retirement (which most people do
| and most financial planners advise)
| getToTheChopin wrote:
| Agreed. Using an assumption of 5-6% annual real total returns
| is more reasonable for financial planning.
| xapata wrote:
| I use a more modest 3.5% real return estimate. I'd rather
| wind up accidentally rich than accidentally poor.
| Ntrails wrote:
| I would describe 3.5% _real_ as pretty reasonable, I would
| not even call it overly conservative
| getToTheChopin wrote:
| The geometric average return of the market is 6.9%,
| factoring in the re-investment of dividends and inflation
| (i.e., the real total return).
|
| Based on this, I'd consider a 3.5% return assumption over
| 20+ years to be conservative.
| Ntrails wrote:
| First, please repeat the standard mantra: past
| performance is no guarantee of future success.
|
| Then tell me the 95th percentile and the median geometric
| returns based of fixed periods (say, copy the 20 years.)
|
| Let us also grab what an inflation linked gov bond would
| have given over those same periods. Classically I would
| always think of pension returns as vs the risk free rate
| (heh, us gov credit risk) which is essentially an IL
| bond.
|
| Then repeat the analysis on, say, the G8 or G20
| countries. Oh, and lets do a variety of stock indexes as
| well. I am a great believer in diversification - so
| betting on the US is not my standard behaviour.
|
| 6.9% assumed return is mad for any individual. It would
| be mad for a DB scheme _and they at least have some risk
| pooling in their favour_.
|
| But. I am hella risk averse and see the world through
| that lens.
| getToTheChopin wrote:
| I'll leave that analysis for you to do and share the
| results.
|
| Using the historical data set for the S&P500 index, a
| 3.5% average annual return over a 20 year holding period
| is approx. 20th percentile.
| tunesmith wrote:
| Man, all these numbers seem so high to me.
|
| I'll just share this. I've recorded every retirement
| contribution and date since I started saving for
| retirement back in the late 90's. From that, I can figure
| APY at any time by comparing to my balance.
|
| I had some learning experiences early on but never
| totally lost my shirt. I went through the dotcom crash,
| the finsys crash, and the more recent stuff. And I've
| been following Bogle philosophy for a very long time, of
| an allocation model with a percentage in US stocks, intl
| stocks, bonds, and cash.
|
| I would _love_ to have 3.5% real over that time period.
|
| Now, it's possible I'm the world's lousiest investor, but
| I don't think so. Because I did a similar exercise
| pretending "what if I had just bought S&P500 on those
| dates?" and looked at dividend-adjusted-close. And the
| results there were also nowhere near as high as you'd
| expect.
|
| People just can't equate "stock market performance" with
| what their own performance will be. You might get laid
| off when economy is bad and markets are down. You might
| have more money to invest at the top of the market, and
| less at the bottom, which totally screws up dollar-cost-
| averaging. You won't be entirely in the stock market,
| keeping some in bonds in cash. Your "well, I'm getting
| old so I should keep less in the market" decision might
| align with the beginning of one of the most irrational
| bull markets in history. (All of the above have been true
| for me.)
|
| I think the only real answers are just to save like
| crazy, keep expenses low, and push for a better social
| safety net. My own retirement projections assume Social
| Security will only pay out at 74%, and I'm feeling the
| need to have a _big_ buffer due to economic /political
| uncertainty, which really sucks.
| [deleted]
| mrandish wrote:
| Yep, long-term I'm okay at 3%, comfortable at 3.5%, happy
| at 4% and awesome anywhere above 4.5%. I find the benefit
| of going with a conservative plan is stress reduction
| during downturns.
| cs702 wrote:
| Make sure also to read Warren Buffett's take, written way back in
| 1999:
|
| https://fortune.com/1999/11/22/warren-buffett-on-stock-marke...
| [a]
|
| For me, the most _shocking_ passage of his piece is this one:
|
| _> ...from the end of 1964 through 1981. Here's what took place
| in that interval: DOW JONES INDUSTRIAL AVERAGE
| Dec. 31, 1964: 874.12 Dec. 31, 1981: 875.00
|
| Now I'm known as a long-term investor and a patient guy, but that
| is not my idea of a big move. And here's a major and very
| opposite fact: During that same 17 years, the GDP of the
| U.S.-that is, the business being done in this country-almost
| quintupled, rising by 370%. Or, if we look at another measure,
| the sales of the FORTUNE 500 (a changing mix of companies, of
| course) more than sextupled. And yet the Dow went exactly
| nowhere._
|
| --
|
| [a] https://archive.ph/ZbKZK
| vikingerik wrote:
| Of course, those are cherry-picked selective endpoints used to
| make the point look more extreme than it is. Look at any other
| 17-year interval, or better yet the average of all of them, and
| you will see that the expected value of growth is indeed
| solidly high.
| eldaisfish wrote:
| Comparing the value of a stock market index at two arbitrary
| points is not a good analysis.
|
| Here are some reasons why - does this include dividends? Are
| the dividends reinvested? Does this include ongoing
| contributions in the interim, perhaps at times when the index
| was down, now leading to an increase in value?
| roflyear wrote:
| Generally it would include dividends in their returns, yeah.
| However, unless your adjusting the size of the position when
| the dividend was paid, these analysis would not reinvest the
| dividends.
|
| Absolutely doesn't include ongoing contributions, I think
| that is the big thing. It is rare to just buy a stock or ETF
| and hold it for 20 years... usually people are buying more or
| selling the position during that period.
| cpncrunch wrote:
| No, those figures are just the Dow Jones index at those
| dates, it doesn't include dividends. You can use this site
| to calculate total return with dividends reinvested:
|
| https://dqydj.com/dow-jones-return-calculator/
|
| Plugging in those dates gives 0.078% return without
| reinvesting dividends (basically the figures given in the
| parent comment), 4.632% with dividends reinvested, and
| -1.941% with dividends reinvested and taking CPI into
| account.
|
| So, you still come out negative due to inflation, even
| after reinvesting the dividends.
| lotsofpulp wrote:
| But no credible investment advice in the last many
| decades has suggested investing in DJIA.
| eldaisfish wrote:
| I am almost 100% certain that the figures you quoted are
| solely the index values. Dividends are not part of the
| index values and never have been.
|
| Zero change in index value over any period of time does not
| necessarily imply zero growth, especially when the time
| frame involved is over a decade.
| roflyear wrote:
| I didn't quote anything, and I specified when looking at
| returns.
| [deleted]
| lotsofpulp wrote:
| Why is the DJIA relevant to any discussion about total stock
| market returns?
|
| https://dqydj.com/sp-500-return-calculator/
|
| This website shows a nominal 6.34% return with dividends
| reinvested from Dec 1964 to Dec 1981.
| cs702 wrote:
| The point is that, despite massive economic growth (GDP
| quintupled) and very high rates of inflation (in the 1970's)
| during that 17-year period, at the end of those 17 years the
| market was valuing what at the time was the most prominent
| index of blue-chip companies at the same market
| capitalization they had at the beginning of the 17 years. In
| short, it seems that market valuations and economic
| performance can decouple for a _very_ long time.
|
| Note that the compound rate of inflation over that 17-year
| period was 6.5%. So, net of inflation, at the end of the 17
| years, the market was valuing the DJIA's blue-chip companies
| at _two-thirds_ less (!!!) than at the beginning of the 17
| years. The S &P500, with all dividends reinvested, net of
| inflation, returned -0.2%/year over those 17 years.
| coldpie wrote:
| > The point is that, despite massive economic growth (GDP
| quintupled) and very high rates of inflation (in the
| 1970's) during that 17-year period, at the end of those 17
| years the market was valuing the index of blue-chip
| companies at the same market capitalization they had at the
| beginning of the 17 years.
|
| Makes you think that perhaps the stock market is not a
| great reflection of any on-the-ground reality, and that
| then makes you wonder what it _is_ a reflection of, and...
| well, best not to think about it. Let 's destroy pensions
| and put all of our savings into this casino run by the
| wealthy.
| lotsofpulp wrote:
| > Let's destroy pensions and put all of our savings into
| this casino run by the wealthy.
|
| The pensions are the reason why the US federal government
| will always bail out the stock market at large. All the
| investments the defined benefit pensions make are in
| those stocks (or correlated with them).
| satvikpendem wrote:
| > _Let 's destroy pensions and put all of our savings
| into this casino run by the wealthy._
|
| I'd rather take the gains from all companies in the US
| (or merely even be allowed to invest in whatever I want)
| than to utilize a pension from a specific company I
| worked for, for 40 years. Pensions are not even
| guaranteed to be paid out, there have been many examples
| in the past 30 years about this case, if the company goes
| bankrupt, doesn't have enough money, etc.
|
| More often, I notice the people who advocate for pensions
| over 401ks or stocks know nothing about what the stock
| market is really like. Yes, if you put it all on GME or
| AMC, you'll lose your money, but as OP shows, you will
| make considerable wealth if you put it into VTI or
| another total stock market fund.
| coldpie wrote:
| > I'd rather take the gains from all companies in the US
|
| As the post I was replying to said:
|
| > The point is that, despite massive economic growth (GDP
| quintupled) and very high rates of inflation (in the
| 1970's) during that 17-year period, at the end of those
| 17 years the market was valuing what at the time was the
| most prominent index of blue-chip companies at the same
| market capitalization they had at the beginning of the 17
| years.
|
| That's the point, the stock market is not related to the
| economy. You're not getting the gains. You're getting
| whatever scraps the bored rich people playing poker with
| each other accidentally drop off the table.
| satvikpendem wrote:
| That's only a 17 year span. If you're funding retirement
| you should look at longer timescales. Also, DJIA is not
| the total market, and as someone else pointed out, S&P
| 500 "shows a nominal 6.34% return with dividends
| reinvested from Dec 1964 to Dec 1981."
|
| > _That 's the point, the stock market is not related to
| the economy. You're not getting the gains. You're getting
| whatever scraps the bored rich people playing poker with
| each other accidentally drop off the table._
|
| I am, though. I _am_ getting the gains. Over the past X
| years, my and my family 's gains from investing in the
| total stock market in the last 50 years (not even
| outliers like Google or Amazon or GameStop) have been
| enormous, on average 7% real as TFA shows. Maybe you're
| not, if you're not investing, but the stock market has
| consistently given us gains. Again, most people who
| mention the kind of "rich boys club" reasoning have been
| in my experience people who don't, won't, or can't invest
| in the stock market.
| coldpie wrote:
| I'm glad you got lucky at the casino. You know all those
| articles about how market downturns can affect your
| retirement plans[1] or your compensation affecting your
| shorter-term plans[2]? It's funny how the people with the
| biggest impact on the market somehow never have their
| retirement plans or lifestyle impacted by market
| downturns. They don't even have to sell their yachts.
|
| The house always wins.
|
| [1] There's a bazillion, here's one.
| https://finance.yahoo.com/news/worried-retiring-during-
| marke...
|
| [2] https://www.parkworth.com/blogs/how-worried-should-
| you-be-ab...
| satvikpendem wrote:
| You're still not getting it. I explicitly said we
| invested in the total stock market, not specific stocks.
| That's not a casino, much as you think it to be. There
| are also ways to ameliorate market downturns for
| retirement, it's not an unsolved problem. See guides over
| at /r/personalfinance or /r/financialindependence if you
| want examples of how.
|
| Again, if you're not investing, that's your problem, but
| don't blame it on the stock market itself. Thinking it's
| just another casino where you have to get "lucky" will
| cost you a lot of money in the future.
|
| Edit: I just took a look at your links, they literally
| contradict the retirement doom and gloom you're referring
| to. From [1]:
|
| > Historically Speaking, You Shouldn't Panic When the
| Market Crashes
|
| > Nevertheless, history says that most well-diversified
| portfolios can and do recover over time.
|
| > What Retirement Savers Can Do
|
| > Even though the situation may seem dire given the long
| time horizon to recovery, there are multiple ways to
| guard against asset depletion. For example, investors can
| avoid selling off assets in a down market by holding one
| to two years' worth of planned withdrawals in cash.
| Worldwide, high-net-worth individuals often keep 21-28%
| of their assets in cash or cash equivalents, with the
| percentage leaning towards the higher end of the range
| during times of market crisis. This also opens an
| opportunity for better buys when the market eventually
| improves.
|
| > Being flexible with withdrawal rates is also key to
| mitigating sequence risk. Morningstar analysts recommend:
| withdrawing a fixed percentage of your portfolio's value
| every year, not adjusting your withdrawal rate for
| inflation (i.e. not increasing your withdrawal percentage
| when inflation is high) or using a so-called guardrail
| approach where you reduce your withdrawal rate if it
| surpasses a set threshold.
| coldpie wrote:
| Yeah there's strategies to help ease a bad pull at the
| slot machine, but it's still a slot machine. Remember the
| 2008 crash? Lots of people got rich in the lead-up to
| that, and the people who paid for their gains were the
| people who had to cash out their chips during the
| following decade for whatever reason. The people running
| the market won, as they always will.
| mrandish wrote:
| The actual data of what's happened historically
| contradicts what you're claiming because you keep
| comparing poor strategy (eg individual or narrow stock
| selection and/or limited time periods) with correct
| strategy which demonstrably delivers the results claimed
| within the quantified risk parameters. It's just math and
| it is objectively correct.
|
| That doesn't mean that there are no risks. There are
| always risks but the math allows us to quantify those
| risks to make informed choices. Executing an effective
| strategy requires understanding the data, identifying an
| approach that fits your goals and then, most of all, the
| financial discipline to rigorously stick to the plan over
| many years despite emotional ups and downs (eg fear in
| downturns, exuberance in upswings).
|
| Personally, I've been executing such a plan for decades
| now and I can assure you it feels nothing like a "casino"
| or gambling. Instead, it's downright boring. Once a year
| I make a predetermined algorithmic rebalance to the broad
| portfolio and otherwise I do nothing and don't even think
| about it. When the portfolio was _way_ up a couple years
| ago, I didn 't cash in any extra nor even 'celebrate'.
| Now that the portfolio is down this year, I'm not selling
| or thinking about cutting "losses." Why? Because they
| aren't losses unless I need to sell and I don't need to
| sell now because those prior "winnings" from a few years
| ago are more than enough to cover several more years of
| downturn if necessary. I'm not worried. The same thing
| happened in 2001 and 2009 and both times the plan worked.
| So far, the overall multi-decade results are so far ahead
| of plan it would take a substantially larger and longer
| global crash than has _ever_ happened to go negative
| (just as the article predicted at >20 years).
|
| It's working, as predicted, and within parameters. What
| I'm doing isn't even complicated much less clever. It's
| just the standard "Bogglehead"-type strategy that's been
| studied forever, used by millions and freely available
| all over the web (eg buy and hold a balanced and broadly
| diversified self-managed portfolio of very low cost ETFs
| (VTI etc)). I have no stock broker, financial planner or
| advisor, I'm no financial guru and I only spend about 90
| minutes once a year on my investment portfolio. Hell,
| I've never even bought an individual stock.
| woobar wrote:
| Do you think pensions are kept in some other types of
| investments? Here are holdings of California Public
| Employees Retirement System:
|
| https://stockzoa.com/fund/calpers/
| orangecat wrote:
| _despite massive economic growth (GDP quintupled)_
|
| In real dollars it less than doubled
| (https://fred.stlouisfed.org/series/gdpc1#0).
|
| _the market was valuing what at the time was the most
| prominent index of blue-chip companies at the same market
| capitalization they had at the beginning of the 17 years._
|
| And during those 17 years those companies paid out roughly
| their entire original value in dividends.
|
| It's true that the Dow lagged the overall economy during
| that period, but not nearly to the degree that the quote
| implies.
| cko wrote:
| GDP growth is uncorrelated with stock market valuations.
|
| https://m.youtube.com/watch?v=DEV49qY0TP8
| cs702 wrote:
| Exactly his point.
|
| In his example, a prominent group of blue-chip companies
| grew for 17 years and their valuations remained flat (and
| net of inflation, declined).
| medvezhenok wrote:
| Even less than that if you account for taxes.
| cs702 wrote:
| Yes. Anyone who bought the indices in 1964 lost money
| _before_ and _after_ taxes for the better part of two
| decades.
|
| In the past, the stock market has sometimes behaved in
| ways that in hindsight make no sense to anyone, with
| valuations staying depressed for _much longer_ than
| anyone ever expected at the outset. I 'd be wary of any
| predictions of stock market behavior for the next 5, 10,
| and 20 years.
| [deleted]
| pc86 wrote:
| My takeaway from that is that either DJIA has the wrong
| companies in it, _or_ it 's representative of a sector that
| experienced negative growth during that time.
| lotsofpulp wrote:
| > 5%. So, net of inflation, at the end of the 17 years, the
| market was valuing the DJIA's blue-chip companies at two-
| thirds less (!!!) than at the beginning of the 17 years.
|
| This means nothing because the DJIA means nothing, and is
| not a good proxy for anything.
|
| >The S&P500, with all dividends reinvested, net of
| inflation, returned -0.2%/year over those 17 years.
|
| This means something, which is that reward is proportionate
| to risk. Investing in the broad US market means your
| investment is backed by the federal US government, which
| means it is riskless on a sufficiently long timeline
| (assuming the US is still relatively powerful in the world
| stage).
|
| You invest in SP500 (or Russell 3000 or whatever broad
| market fund) to keep up with inflation, over many years,
| not to earn more than inflation. If you want to do that,
| you have to take risks.
| danielmarkbruce wrote:
| DJIA is a decent proxy for market returns. If you don't
| think so, just look at the DJIA and the s&p total return
| index. They track pretty closely overall.
|
| Buffett isn't a dummy. If DJIA meant nothing, he wouldn't
| have quoted it.
| [deleted]
| rr888 wrote:
| Outside America this has been pretty common or even worse.
| FTSE100 (UK), CAC40 (France) are right now trading the same
| values as 1999. Nikkei is the same level as 1988. HK is same as
| 2007.
| bityard wrote:
| I read this as Buffet criticizing the validity of using the
| DJIA as a proxy for real market performance.
|
| I'm not an economist or big time investor but even I know to
| basically ignore the DJIA for all useful purposes.
| danielmarkbruce wrote:
| That's not what he was doing. He was pointing out that stocks
| and the economy aren't the same thing. As in his example, if
| prices are too high at point X, then over the next 17 years
| prices can go down even if GDP is going up.
|
| It's an expectations market.
| lotsofpulp wrote:
| Buffett advises investing in SP500, because it does serve
| as a proxy for the economy. Assuming you think the US is
| going to be around in 10, 20, 30, 40 years in any
| formidable form, then surely the performance of its largest
| 500 businesses is some sort of proxy for the performance of
| its economy.
| danielmarkbruce wrote:
| He advises investing in the SP500 because for people who
| don't know what they are doing he doesn't see a better
| alternative. And he's right.
|
| And sure, it will almost certainly track the economy in
| some sense over decades, but it need not do that over
| 10-15 (or 17 in his example), and it isn't some law of
| physics type situation. The underlying factors that drive
| returns on capital through time (strong property rights,
| reasonable labor laws, stable government) also likely
| drive economic growth.
| getToTheChopin wrote:
| Great call-out. Here's a non-paywall version to that article:
| https://www.berkshirehathaway.com/1999ar/FortuneMagazine.pdf
|
| Interesting to note that if you'd bought and held the S&P500
| index for the 20-year period of 1998 to 2018, you would have
| invested through the dotcom bubble and the great recession --
| but still ended with an average real total return of 3.3% per
| year over that timeframe (adjusted for dividends and
| inflation)!
|
| Edit: typo
| roflyear wrote:
| I never thought this was being too honest, as no one just
| buys the SPY once and forgets about it.
|
| Most people invest at some interval (through their 401k, IRA,
| or whatever) and it is much better to run some kind of test
| that mimics this to some degree.
|
| If you bought the SPY once a year, once a month, once a XXX
| from 1998 to 2018, what are your returns looking like?
| scottLobster wrote:
| Paul Merriman has a fun "lifetime investment calculator"
| that can get you those numbers, it assumes investing Jan 1
| of every year (It's tuned to their recommended allocations
| but includes the S&P 500 as a baseline).
|
| https://paulmerriman.com/lifetime-investment-calculator/
|
| If you'd invested 100% in the S&P 500, say 10,000 a year on
| Jan 1 every year from 1998 to 2018, you'd have $522,135
| from a $200,000 total principal, or roughly 13% annualized
| return (not including inflation)
| teraflop wrote:
| That question is also relatively easy to answer:
| https://www.portfoliovisualizer.com/backtest-
| portfolio?s=y&t...
|
| The "rate of return" isn't quite as simple to define when
| you're talking about multiple contributions over time. The
| most straightforward approach is to look at it as a
| weighted average, and the exact value depends on how you do
| the weighting. But in this case, it's in the ballpark of
| 7%/year nominal, which is probably 4-5%/year after
| inflation.
|
| As you can see, you get a big boost (at least in this
| cherry-picked example) by continuing to invest through the
| downturn.
| getToTheChopin wrote:
| Agreed that an example of buying once per year (or quarter
| / month) over time and calculating the return of that
| scenario is more applicable to the experience of a regular
| investor.
|
| This can be eye-balled on this chart:
| https://themeasureofaplan.com/wp-
| content/uploads/2023/01/Rol...
|
| The bottom graph shows the annualized return for each
| 20-year period in market history. 20-year holding periods
| have this behaviour: - Max: 13.2% - Min: 0.5% - Average:
| 6.6% - Std. Dev.: 3%
|
| So, if you dollar cost average over time and hold each of
| those investment cohorts for ~20 years, you should expect
| an average annual return of roughly 6% (+/- 3%).
| DMell wrote:
| These backtests used to be fun when I had access to a
| Bloomberg terminal. But, yes.. this discussion shows the
| importance of dollar cost averaging.
| roflyear wrote:
| Yup! Also diversification. It is rare to have ONLY
| equities (in my experience, though I only have equity &
| cash positions!!) and having even 10-20% of bonds would
| make a MASSIVE difference, especially through the 70s,
| 80s, 90s!!! (when yields were an average, EYEBALLING,
| like 8-9% or something!) see:
| https://www.macrotrends.net/2016/10-year-treasury-bond-
| rate-...
| [deleted]
| maxclark wrote:
| Past results don't guarantee future performance ;)
| paulpauper wrote:
| Stock market up a lot today, almost 3%. It's days like today that
| make it worthwhile. You cannot have upside without also having
| some down days or even, occasionally, down years.
|
| It's interesting how the DJIA has done so much better then the
| S&P 500. I think this shows the value of periodically removing
| weak components from the index and choosing only the largest of
| already large companies instead of 500 large companies. the DJIA
| also held up well in the 2000-2002 bear market.
| getToTheChopin wrote:
| Yep. "Avoiding the market's downs may mean missing out on the
| ups as well. 78% of the stock market's best days occur during a
| bear market or during the first two months of a bull market. If
| you missed the market's 10 best days over the past 30 years,
| your returns would have been cut in half. And missing the best
| 30 days would have reduced your returns by an astonishing 83%."
|
| https://www.hartfordfunds.com/practice-management/client-
| con....
| getToTheChopin wrote:
| This is an analysis of U.S. stock market returns over the past
| 150 years.
|
| A few insights:
|
| The average return of the U.S. stock market has been 8.4% per
| year over the past 151 years (1871 to 2022); this is the "real
| total return" reflecting dividends and inflation
|
| While the U.S. stock market has trended upwards over time, the
| market has declined in 31% of all years on record (47 years out
| of 151 years in total); for example: in 2022, the U.S. stock
| market dropped by 23.3%
|
| The range of returns across 1-year periods has varied
| significantly (from negative 37.0% to +53.2%). However, the
| annualized returns across 20-year periods have a much tighter
| range (from +0.5% to +13.2%)
|
| In other words, the stock market has never declined over any
| 20-year time period!
|
| Sources: Professor Robert Shiller and Yahoo Finance; note: the
| "U.S. stock market" refers to the S&P Composite index from 1871
| to 1957, and the S&P 500 index from 1957 until today
| retube wrote:
| > The range of returns across 1-year periods has varied
| significantly (from negative 37.0% to +53.2%). However, the
| annualized returns across 20-year periods have a much tighter
| range (from +0.5% to +13.2%)
|
| You'd expect something like this. For a normally distributed
| iid, the annualised volatility of returns over n years scales
| as sigma / root(n). So if your one year vol was 10%, the
| annualised vol over a 20 year period would be 10%/sqrt(20) =
| 2.23%.
| xapata wrote:
| Are they normally distributed?
| pclmulqdq wrote:
| Almost, but the distribution has slightly fat tails.
| ttymck wrote:
| Is it correct to say that makes it (slightly) more like a
| uniform distribution, if viewed as a spectrum between
| one-point distribution and uniform?
| xapata wrote:
| It's hard to imagine a uniform distribution over an
| infinite domain, but that sounds right if you're think of
| it as a half-open spectrum.
| kqr wrote:
| I don't think normality is required -- the sqrt(n) scaling
| factor comes out of variance laws and the definition of the
| mean.
|
| It should be true for any distribution that has a variance,
| and the 150-year historic return certainly has a variance.
| xapata wrote:
| The sample variance is different from the distribution
| variance, but I get your point.
| fedeb95 wrote:
| "In other words, the stock market has never declined over any
| 20-year time period!"
|
| That's not true. It is if you cheat by taking useless averages.
| It as declined, as you say too, a lot of times, and very badly,
| many many times.
| getToTheChopin wrote:
| The linked page covers this in detail. The market goes down
| often, and sometimes goes down significantly for several
| years!
|
| The specific point being made is that there has never been a
| 20-year period where the U.S. stock market declined -- when
| comparing the start versus end value of the S&P 500 index, on
| a dividend / inflation adjusted basis.
| pc86 wrote:
| There doesn't appear to be any period in question where you
| could invest in a broad-based index of funds and withdraw
| that investment 20 years later at a loss. That's what is
| shown in the FA and what the comment above means. Nobody's
| saying it has never declined.
|
| What isn't true about the above statement? It's incredibly
| specific, yes, but it shows that at least historically buying
| and holding over time limits huge gains but also limits
| losses.
| 8n4vidtmkvmk wrote:
| it's not an average. its saying you buy at the start of the
| 20 year period and withdraw after 20 years.
| albert_e wrote:
| if I invest for say 10 years with a conditional exit/hold
| strategy at tne end (i book profit and exit if I am in green,
| or decided to wait up to 5 more years till i turn green / with
| a minimum threshold) ...would that flexibility in investing
| strategy bump up my annualized returns (and presumably
| significantly reduce negative returns)?
| kqr wrote:
| This sounds at its core like a "wait until I've made my money
| back" strategy. And yes, per definition you're guaranteed to
| make your money back if you follow it.
|
| It's not E log X-optimal though.
| pc86 wrote:
| This doesn't sound like something you can know without back-
| testing that assumption (which is fairly easy).
| getToTheChopin wrote:
| You can run a back-test on that type of strategy using the
| underlying data from the linked post: https://drive.google.co
| m/drive/folders/1hacdyPFJtLMybJrf4CwF...
|
| Edit: typo
| EVa5I7bHFq9mnYK wrote:
| When 99% of investors agree on an investment idea, usually that
| means a bubble that is going to burst.
| danhak wrote:
| Of course a country's stock market will perform well as that
| country ascends to become the world's dominant superpower.
|
| The question is whether the power and influence of the U.S. will
| grow similarly over the next 150 years as it has over the last
| 150.
|
| To invest mechanically without thinking about what's actually
| happening in the world is cargo cult behavior.
| getToTheChopin wrote:
| Fair point. To add some context though, this data is based on
| the returns of the S&P500 index.
|
| Companies in the S&P500 index are based in the U.S., but most
| of them earn revenues internationally as well.
|
| "Roughly 40% of S&P 500 revenues are generated outside of the
| U.S., and about 58% of Information Technology company sales
| were sourced from abroad."
|
| Source: https://www.globalxetfs.com/sector-views-
| sp-500-sensitivity-...
|
| So, the performance of the U.S. stock market in the next 150
| years will not rely solely on U.S. specific economic growth.
| MuffinFlavored wrote:
| I've always wondered, why do American investors get to
| benefit from companies like Apple? Why does Apple choose to
| be a U.S. company? We're obviously in competition with other
| countries globally in terms of getting companies like Apple
| to give us their tax dollars.
|
| I know Apple does this https://en.wikipedia.org/wiki/Double_I
| rish_arrangement#:~:te....
|
| I just wonder, can they really not find a more favorable
| country to route the gross of their revenue through?
| froglets wrote:
| Didn't Apple already move to Ireland for the tax breaks?
| JackFr wrote:
| The maturity and stability of the US stock market (by which
| I mean institutional and structural stability rather than
| price stability) make it the most frictionless, transparent
| and predictable place to raise equity capital. Add that
| dollars are also attached to a broad domestic market and
| the US corporate form is strongly entrenched in a culture
| of rule-of-law and there's a compelling case to create and
| maintain your company in the US.
| MuffinFlavored wrote:
| > The maturity and stability of the US stock market (by
| which I mean institutional and structural stability
| rather than price stability) make it the most
| frictionless, transparent and predictable place to raise
| equity capital.
|
| The number one way that Apple benefits from this is
| giving shares to employees as compensation, right?
|
| They aren't commonly "financing" projects with stock as
| far as I understand it. aka, they aren't diluting
| existing shareholders by issuing fresh shares to take
| advantage of the share price.
|
| Since they aren't doing that, how do they benefit
| financially from their share price?
| saltcured wrote:
| They benefit from the stable marketplace every time a bit
| of ownership is exchanged from one party to another via
| stock transactions.
|
| Compare this to some partnership or other private
| structure where owners may be unable to exit unless they
| can force the company to liquidate some assets to buy
| them out. Companies and investors who work that way can
| face liquidity hazards compared to a similar-sized stock
| corporation.
| tylerhou wrote:
| When Apple compensates employees with shares they issue
| them out of thin air IIRC. These are dilutive and are
| listed on their quarterly financial statements. So yes,
| they are financing projects with stock.
| snowwrestler wrote:
| Do you think that people outside the U.S. cannot invest in
| Apple stock?
| MuffinFlavored wrote:
| No, I'm saying why does Apple choose to be "home" in
| America.
| WoodenChair wrote:
| 1. Rule of law
|
| 2. Mature financial system
|
| 3. Investment dollars
|
| 4. Talent/where talent wants to move to
|
| 5. Aligned values with California home base
|
| 6. USA represents their largest market for their products
|
| 7. The cost of moving
|
| 8. Cultural connection to where a company started
|
| 9. Existing investment in headquarters/infrastructure
| around the country
|
| 10. Political clout that being a US company provides
|
| 11. Network economics of being near other big tech in
| Silicon Valley/Austin/New York campuses
| jpadkins wrote:
| It's where they were founded / started up. And the cost /
| benefit of leaving US jurisdiction has never been high
| enough for them to relocate.
|
| There are a lot of benefits of being incorporated in USA
| / Delaware.
| xapata wrote:
| What alternative would you suggest?
| snowwrestler wrote:
| Ah, it's a good question. Apple was founded in the U.S.
| obviously, but U.S. companies can and sometimes do move
| their headquarters to another country. Burger King did it
| in 2014, reincorporating in Canada for primarily tax
| reasons. You can look up "corporate inversions" to see
| some other examples.
|
| But the advantages have be very large for this to be
| worth it. The U.S. is a great place to do business in
| many ways. And as you noted above, U.S. companies can
| still get a lot of "foreign" tax benefits by shifting
| assets around between foreign subsidiaries (Apple's Irish
| trick for instance).
|
| There are also emotional complications. A company like
| Apple is not just headquartered in the U.S., it is
| tightly coupled with the U.S. cultural identity. Moving
| out of the U.S. would break some of those ties, with
| resulting harsh consequences for Apple in politics,
| culture, retail sales, maybe even employees. You can look
| up what happened after Burger King moved... people were
| pissed.
|
| So the short answer is, they started in the U.S. and
| staying here has a lot of benefits, while moving would
| come with high costs and somewhat unpredictable risks.
| MuffinFlavored wrote:
| > Apple was founded in the U.S. obviously, but U.S.
| companies can and sometimes do move their headquarters to
| another country.
|
| https://www.sec.gov/Archives/edgar/data/320193/0000320193
| 180...
|
| Apple Computer Trading (Shanghai) Co., Ltd. China
|
| Apple Distribution International Ireland
|
| Apple Europe Limited United Kingdom
|
| Apple Japan, Inc. Japan
|
| Apple Operations Ireland
|
| Apple Operations Europe Ireland
|
| Apple Operations International Ireland
|
| Apple Sales International Ireland
|
| Braeburn Capital, Inc. Nevada, U.S.
|
| It gets confusing to me as somebody "not in the know" on
| domestic/international business law/practices.
|
| https://archive.nytimes.com/www.nytimes.com/interactive/2
| 013...
|
| > According to a report by a Congressional panel, Apple
| has avoided billions in taxes through the use of
| international subsidiaries.
|
| > Apple has subsidiaries in Ireland where the company has
| negotiated a special tax rate of 2 percent. These units
| contract with manufacturers to assemble Apple products,
| sell the products to other subsidiaries for distribution,
| and return the profits up the chain of companies in the
| form of dividends. But some of these subsidiaries do not
| have a stated tax residence and pay no taxes at all.
|
| This is from 2013 so I'm sure it's out of date-ish.
|
| > These 3 subsidiaries are incorporated in Ireland, but
| have no country of tax residence
|
| Looks like what I'm looking for is "country of
| incorporation and tax residence"
|
| Seems like companies can choose to "file/create" their
| corporation in any country, then have miniature
| "subsidiaries" (is this the right word) in various other
| little countries.
| layer8 wrote:
| Just invest in a world index. See for example
| https://curvo.eu/backtest/portfolio/msci-world--NoIgsgygwgkg...
| --> minimum investment horizon.
|
| Of course the whole world could go into a multi-decades-long
| recession, but then we'll have much more serious problems
| anyway.
| Negitivefrags wrote:
| I always hate this "If it doesn't work we have much more
| serious problems" attitude.
|
| If the world did go into a multi-decade recession, what "more
| serious" problems would you have then your investments doing
| poorly?
|
| You might answer things like " buying food due to shortages"
| or something, but surely whatever problem you name, being
| more rich is going to solve it?
|
| Now you can invest on the thesis that this isn't going to
| happen, but to argue that the whole concept of investment is
| useless if it does seems very suspect to me.
| 7steps2much wrote:
| Different scale of seriousness. If the whole world goes
| into a recession there is a big difference between food
| shortages that you can buy your way out of with cash and
| food shortages that come as a result of societal collapse
| and money being worthless.
|
| Being rich only matters as long as your investments/assets
| hold any value. If truly serious problems around your
| investments go to 0, your assets are only worth something
| as long as you can maintain control of them (police won't
| be around, nor will judges be) and even then your car will
| be worthless without gas.
|
| It all depends on what meaning a person assigns to
| "serious" in this context. Personally as long as being rich
| solves my Problems I wouldn't describe any situation as
| serious.
| paganel wrote:
| > Being rich only matters as long as your
| investments/assets hold any value.
|
| Also, as long as poorer people are not after you and your
| properties (and your life, even) through a revolution,
| which revolution could be caused by world-wide economical
| and societal crisis (if not a revolution then maybe a
| civil-war where the rich are of the wrong ethnicity etc)
| [deleted]
| layer8 wrote:
| Okay, let's put it this way: There's no strategy that
| avoids all risks. You have to balance risks and possible
| gains. You can balance the risk of investments in the stock
| market by allocating part of your money to other
| investments or stores of value that you believe will do
| better in the scenario where the markets go down long-term.
| In other words, diversify and allocate according to your
| risk aversion. This being said, a world index provides a
| maximum of diversification in the equity market.
| purpleblue wrote:
| If everyone is in a recession, then no one is in a recession.
| ketralnis wrote:
| > The question is whether the power and influence of the U.S.
| will grow similarly over the next 150 years as it has over the
| last 150.
|
| I don't think that's required. Most of these analyses use US
| stock data because it's so easy to gather compared to
| international data. The do trends hold internationally, but the
| magnitudes are reduced. So if you think the US will regress
| closer to the international mean (and I'd agree) then you can
| use things like the shape of the bell curve, just not the
| height. And indeed, this bears out if you look at the markets
| of the UK or most of the EU. Pretty much any reputable adviser
| will tell you that that's the consensus, that future returns
| will probably be lower for the next few decades than they were
| for the last few. (Usually you see this in the media amplified
| to a more ridiculous version but that's modern clickbait
| reporting for you.)
|
| There are other possibilities like we could stagnate for 3
| decades like Japan. But yes, that's investing, that's the
| nature of the bets you're taking.
|
| I'm having trouble finding the quotes but around the turn of
| last century British economists were looking at the US's
| explosive economic growth compared to the UK and attributed it
| to the US having the equivalent of a sudden injection of
| capital in the form of a whole continent full of free real
| estate. That is, they reasoned that the UK's growth was limited
| to what they could do on their existing, mostly already owned
| and developed land but the US had more physical space for the
| balloon to expand into. They reasoned that soon that would
| happen though and the US would grow to fill that space and
| eventually its economic growth would slow down closer to the
| UK's. That clearly didn't happen then. I don't think the lesson
| is the US is exceptional and will continue to outpace the world
| forever, but I do think that a lesson is that predicting this
| stuff is hard and reasonable-sounding ad hoc hypothesis don't
| always bear out.
| dangus wrote:
| I would argue that borders are irrelevant. Large multinational
| companies generally list on US stock exchanges.
|
| For example, Spotify is a Swedish company listed on the NYSE.
| nemo44x wrote:
| > The question is whether the power and influence of the U.S.
| will grow similarly over the next 150 years as it has over the
| last 150.
|
| Over the next 150 years I have no idea. But over the next 30-50
| then almost certainly. No other country is even close and most
| seem quite comfortable with the global state of affairs all
| things considered. USA hegemony has created a stable world
| where the vast majority of people are far better off than their
| ancestors. It isn't perfect of course but there's no reason to
| think anyone else would do better. Especially when compared to
| the previous tenant, Europe.
| wintogreen74 wrote:
| >> To invest mechanically without thinking about what's
| actually happening in the world is cargo cult behavior.
|
| Maybe, but this describes the investment strategy of pretty
| much every index-based fund and they've been the big winners
| over a long time frame. Why do you care what happens to a
| market 100+ or even 50 years from now?
| nscalf wrote:
| More interesting that power and influence, which is an open
| question, is demographics. There is little to be done about
| shifting world demographics. Even if the us stays the premier
| world superpower, can that offset massive declines in the
| amount of people producing and consuming _everywhere_? While
| the us may actually be okay with shifting demographics (Zeihan
| has some interesting stuff on this), most major economies are
| facing rapidly declining populations over the next couple of
| decades.
| warinukraine wrote:
| > There is little to be done about shifting world
| demographics
|
| Hmmmm immigration. That's how fast growing powers have always
| done it.
| WeylandYutani wrote:
| If population growth is the only way for our capitalist
| system to survive we're screwed.
|
| Sad that nobody has been able to come up with something
| better that doesn't involve "infinite growth".
| badpun wrote:
| You can't add 20+ million imigrants to Germany (and that's
| what's they'd need over the course of the next decade or
| two in order to avoid demographic collapse) without massive
| social problems and/or Germany no longer being Germany.
| JumpCrisscross wrote:
| > _without massive social problems and /or Germany no
| longer being Germany_
|
| This is where America wins. There is no American
| ethnicity. There may be, historically. But
| mythologically: no.
| warinukraine wrote:
| Saying 20m is meaningless unless you mention a time
| scale.
| HDThoreaun wrote:
| You can if you force every immigrant to be educated.
| Germany's problem is that their immigrants are not. There
| are more than enough educated people that want to
| immigrate to America, start with allowing every
| international college graduate to stay and your most of
| the way to solving the demographic problem.
|
| Even still, the US is much less homogenous than germany.
| A variety of cultures is not a problem.
| ceejayoz wrote:
| Demographic collapse won't cause "massive social problems
| and/or Germany no longer being Germany"?
| badpun wrote:
| Yes, of course. My point is that they're screwed either
| way. The time to fix this was 30 years ago.
| toomuchtodo wrote:
| Underrated comment. You can't print human capital, and if
| fertility rates are declining everywhere, every nation is
| competing for a shrinking young, productive talent pool.
| mattnewton wrote:
| The US is well suited to solve this problem with more
| immigration, we already have more incredibly talented
| people banging on the doors then our nightmarish
| naturalization system can take.
| toomuchtodo wrote:
| Convince the electorate. People are challenging.
| thebradbain wrote:
| Convincing the electorate of most things is just a matter
| of marketing, for better or worse. You'd be surprised how
| many former PR and marketing execs now work in DC think
| tanks and as lobbyists and political consultants.
|
| Coca Cola has made and kept its fortune by successfully
| associating a syrup that is bad for you with Pure
| Happiness.
|
| Marketing, media exposure, and subliminal messaging both
| turned Americans completely against weed from the
| 70s-2000s and then also now completely in support of weed
| legalization in the past decade.
|
| Similarly, as we're seeing play out today, the right has
| found success marketing the "danger" of drag queens to
| turn political opinion against the LGBTQ community, which
| itself gained overwhelmingly acceptance in the face of
| once-overwhelming disapproval by powerful self-
| determination and taking control of how they were
| portrayed in the media.
|
| The same forces that convince people en masse to buy a
| certain brand can just as easily be used to affect how we
| view any political issue.
| jpadkins wrote:
| Look at the most recent republican immigration bill - it
| was basically canada's or australia's immigration system.
| The electorate very much wants to keep skilled, legal
| immigration going.
| JumpCrisscross wrote:
| There isn't unified opposition to skilled labor. Look at
| the purported nurse shortage: we're going to import our
| way to wage stability.
| toomuchtodo wrote:
| You're right on the first part, but you don't need
| unification to stop something. We're in the 11th or 12th
| speaker of the house vote because of ~20 folks.
|
| https://old.reddit.com/r/politics/comments/104vin7/discus
| sio...
|
| To assume logic will prevail in a system with a
| substantial emotional component is a dangerous
| assumption.
| JumpCrisscross wrote:
| You're correct. But that preserves the _status quo_.
| Immigration doesn't require reauthorisation.
| scottLobster wrote:
| More importantly every nation is competing for a shrinking
| pile of consumers. Old people can be extremely productive,
| but they don't buy nearly as much on average, so all that
| productivity has nowhere to go if there are fewer young
| people to sell to.
| vl wrote:
| I'm actually not concerned about demographics. With coming
| automations and workforce becoming irrelevant societal
| changes are going to be so tremendous, that age of the
| population is not going to matter.
| mypastself wrote:
| Therefore investing mechanically in the _whole world_ might be
| a safer bet. Other than currency risk, home bias investment
| never felt like the optimal approach to me, even if your home
| is the world's most powerful economy.
| pacetherace wrote:
| I find the inflation as a variable very interesting. Countries
| that don't have strong economies generally tend to have higher
| inflation. So we may continue to see the stock market continue
| to rise indirectly due to inflation but the net return would be
| much lower.
| lastofus wrote:
| > The question is whether the power and influence of the U.S.
| will grow similarly over the next 150 years as it has over the
| last 150.
|
| > To invest mechanically without thinking about what's actually
| happening in the world is cargo cult behavior.
|
| This is why it's suggested that unthinking mechanical investors
| invest globally, not just in the US. For example, VT, a single
| set and forget index fund has 40% international exposure.
| That's to speak nothing of the S&P 500 companies that do
| business internationally.
|
| https://www.morningstar.com/etfs/arcx/vt/portfolio
| WeylandYutani wrote:
| Smart people invest globally. I have no illusions that American
| billionaires care about borders or governments.
| rsync wrote:
| "The question is whether the power and influence of the U.S.
| will grow similarly over the next 150 years as it has over the
| last 150."
|
| No, I think the question is more subtle ...
|
| Will the _relative_ power and influence of the US grow
| similarly.
|
| ... and I think that may be a very good bet.
|
| The three closest "competitors" - the Eurozone, China and Japan
| - are, in their own unique ways, dysfunctional basket cases:
|
| Europe's northern savers and taxpayers have to pay for southern
| workers to retire at 60 ... and southern workers need to eat
| benefit losses to avoid further (br)exits. This is a not-
| insignificant economic and cultural mismatch and the results of
| even minor adjustments are _riots in the streets_ [1] ... or
| boring, orderly referenda[2].
|
| It is unknown whether the CCP can survive _any meaningful
| slowdown in growth_ and whether much of the growth of the last
| 10-15 years (enormous empty cities) was substantive or useful
| at all.
|
| Japan is undergoing civilizational and cultural collapse.
|
| So ... while there is _much dysfunction_ - both economically
| and politically - in the United States, it is an enormous,
| resource rich country that can exist _wholly independently_
| from the rest of the world.
|
| It also enjoys absolute control of the worlds oceans and
| brutally dictates economic and geo politics[3].
|
| In a world of troubled and fraught investments, the US is
| probably the least troubled and fraught.
|
| [1] https://en.wikipedia.org/wiki/Yellow_vests_protests
|
| [2]
| https://en.wikipedia.org/wiki/Dutch_withdrawal_from_the_Euro...
|
| [3]
| https://en.wikipedia.org/wiki/2022_Nord_Stream_pipeline_sabo...
| dirtyid wrote:
| >may be a very good bet
|
| Trend last few years is PRC closing gap and approaching
| parity in indicators like GDP (already exceeded by PPP), % of
| global gdp / trade, science and innovation indexes, value
| chain upgrades etc. Even PRC military development and
| diplomacy is sufficient to get countries hedge / not commit
| to US alignment, which was unthinkable 10+ years ago. IMO US
| will find it difficult to maintain relative "lead" when, in
| the words of state department, "China is the only country
| with the economic, diplomatic, military, and technological
| power to seriously challenge" US order. That said, I think US
| has headroom via dictating economic and geopolitics within
| her relatively wealthy bloc and grow at the expense of
| others.
|
| >It is unknown whether the CCP can survive any meaningful
| slowdown in growth and whether much of the growth of the last
| 10-15 years (enormous empty cities) was substantive or useful
| at all.
|
| Western fixation with PRC real estate waste as proxy
| indicator of China (econ) collapse is particularly stupid.
| It's like suggesting US who spends ~20% of GDP on healthcare
| (approximately PRC real estate) with suboptimal result is
| spinning development wheels. Same with PRC wasting a few
| trillion in suboptimal real estate when significant
| (majority) resources being invested to bring up other (above)
| indictators that has substantively contributed more to PRC
| "comprehensive national power". Like US isn't initiating
| unprecented PRC containment policies because of a bunch of
| empty of housing units.
| vl wrote:
| ([3] link)
|
| Are you implying that US sabotaged Nord Stream?
| rsync wrote:
| Yes. Or that it was sabotaged with our blessing.
|
| It was a Keyser Soze move that basically destroyed Russias
| bargaining position.
|
| At the same time, it was an _enormous fuck you_ to EU
| citizens and, in particular, Germany: _" Oh yes you will
| buy our gas ..."_
|
| It appears to be panning out in a non-destructive way for
| the EU citizenry as they muddle through this winter but it
| was not obvious that would be the case and this
| (relatively) benign outcome could not have been predicted.
|
| If I were an EU citizen (particularly a German) I would be
| upset. Even as an American I am disturbed ...
|
| EDIT: You know that thing ... that _crazy thing_ that Dick
| Cheney said in that interview[1] ? About how there is no
| reality and reality is whatever we say it is:
|
| "We're an empire now, and when we act, we create our own
| reality."
|
| ... every day that goes by I become more and more convinced
| that he could be right. NS2 sabotage makes it hard to argue
| with him.
|
| [1] https://www.theatlantic.com/daily-
| dish/archive/2009/04/were-...
| lostlogin wrote:
| > "We're an empire now, and when we act, we create our
| own reality."
|
| There is an argument going on in the thread about empires
| size and distance from the capital.
|
| The person who makes out the US is an empire which
| controls a bulk of the globe is getting down voted - I
| think you are needed there.
|
| https://news.ycombinator.com/item?id=34275668
| speakfreely wrote:
| Another one of those interesting discussions that the news
| seems to have forgotten. It seems Ukraine had the most to
| gain, but from my limited understanding it's not so easy to
| robotically place explosives at the bottom of the sea in a
| precise, destructive manner unless you have a really well-
| funded naval force.
|
| It kind of reminds me of the polonium poisoning that has
| become a Russian signature move. Despite not taking credit,
| the number of actors who have the capability to do it is so
| limited that it's basically outing them regardless.
| DontchaKnowit wrote:
| No one seems to want to bring up the press conference
| where Biden said that if Russia invaded Ukraine there
| would no longer be a nord stream pipeline. When asked to
| clarify he said something like " oh youll see"
|
| Everyone just forgot that happened. Strange.
| bwanab wrote:
| For a civilizational basket case, Japan's GDP/capita has held
| up pretty well. Their industrial output is very strong for a
| country with sparse internal resources.
|
| Europe's problems are not unlike the U.S. internal problems
| where the tech and financial centers mainly on the coasts
| subsidize the rest of the country. The difference of course
| is that the states of the EU can exit, where the American
| states cannot. I'm not sure which situation is preferable.
|
| China is a black box, but so far recent history has indicated
| the populace will go along with a lot of pain to avoid chaos.
| scythe wrote:
| Japan's real limitation here is primarily that they're
| relatively small (1/3 the size of US/EU), and their most
| "aligned" neighbors (Korea, Taiwan, Phillippines) don't
| like them very much. It's not like you could reasonably fit
| many more people on the islands as it is.
|
| US wealth distribution is much flatter than European. The
| GDP/capita ratio between Mississippi and Connecticut is
| less than 1:2, while for Germany to Hungary it's more like
| 1:4.
|
| China is... China. You can't call yourself the Communist
| Party _and_ run the global financial system. The world can
| only tolerate so much contradiction.
|
| The open question now is whether the dollar can be
| dethroned by nothing: can a basket of currencies become the
| default reserve?
| bwanab wrote:
| <The world can only tolerate so much contradiction.>
|
| My guess is the world can tolerate it as long as
| everybody is making money off it. When that stops, the
| contradiction might seem intolerable.
|
| The world needs a default reserve that's not tied to any
| single central bank. For all the upsides there are also
| real downsides for the US having its currency as the
| default reserve.
| malandrew wrote:
| China is also expected to see population collapse. They are
| rapidly aging and there's no sign that that is reversing.
| dirtyid wrote:
| IMO population "collapse" or demographic "decline" not
| right lens for unevenly developed country with massive
| population and high import dependency especially in context
| of "relative power". TBH it's surface level PRC collapists
| narrative.
|
| What will happen (by design or not) is PRC demographics is
| being "strategically optimized" with the greatest
| demographic uplift/upgrade in recorded history. Roughly
| replacing 2 low skilled, under-educated workers with 1
| skilled worker with additional automation. Every ~10 years
| for the next few decades, PRC will be upgrading / swapping
| the human capita potential of 1 Nigeria for 1 Japan, it's
| less people, but much more productive people. With PRC pop
| base effect this is still multiple more educated labour
| pool per year than US or other blocs can generate with
| immigration, and 100s of million more in net talent. Less
| people also alleviates import dependency, PRC with 1B (400M
| less) people would have substantially more strategic space
| to operate. It works towards close relative power
| potential. CCP wants to smooth out the pyramid with more
| births for better managed transition, which
| structurally/culturally PRC with some of the highest house
| hold savings rate and minimal expectation for safety net is
| positioned to weather, but long term PRC comprehensive
| national power is best improved by having less net people,
| with more % skilled people.
| cwkoss wrote:
| [flagged]
| Supermancho wrote:
| America and Americans are not the same thing.
| GalenErso wrote:
| I am not American, and I think America is a very, _very_
| special country. See this article:
| https://acoup.blog/2022/07/08/collections-is-the-united-
| stat...
|
| > The result of all of this is the bizarre situation that
| the world's foremost land power is also the world's
| foremost naval power, which is also the world's foremost
| diplomatic power, which is also the world's foremost
| economic power, entrenched in the high ground of most of
| the world's international institutions. One may of course
| argue that this situation is changing, albeit slowly, but
| at the moment the contrast is startling: the sphere of
| Russian influence does quite reach Kyiv (about 150 miles
| from the Russian border) and the sphere of Chinese
| influence does not quite reach Taipei (about the same
| distance, but over water), but American influence evidently
| reaches both despite the former being 4,300 miles and the
| latter 6,500 miles away from American shores.
|
| > That has never happened before; it may well never happen
| again. We have seen regional hegemons similarly dominant in
| their local neighborhoods (the Roman Empire, the Han
| Dynasty, Achaemenid Persia, etc.) and to lack peers
| locally, but the United States is the first and only
| country to have done this on a global scale and to lack
| true peer competitors anywhere. Even as the 'monopolar
| moment' seems to be coming to an end, the United States'
| position as 'first among equals' among the 'great powers'
| is historically unparalleled; no state has ever been so
| clearly without peers influence and power except for maybe
| - wait for it - the Mongols.
| andrewprock wrote:
| Yes, for better or worse, the US navy is the moderating
| force that maintains the Pax Americana. The US
| essentially controls all oceanic trade. As one might
| expect, having a global stranglehold over efficient trade
| corridors puts the US in a very unique situation,
| militarily, economically, and diplomatically.
| karaterobot wrote:
| Downvoted because the person you're responding to took the
| time to make a case, right or wrong, and your response is
| just this peremptory dismissal that adds nothing and only
| lowers the tone.
| cwkoss wrote:
| > It is unknown whether the CCP can survive any
| meaningful slowdown in growth
|
| Is what really peeved me. Besides wrapping an extreme
| opinion in "it is unknown whether", it is ridiculous to
| insinuate that China is on the verge of collapse. They
| have built more wealth this century than the US and
| Chinese median wages are rapidly approaching America's.
|
| Makes me wonder what nationalist propaganda has convinced
| that poster that America isn't an even-more dysfunctional
| basket case.
| SilasX wrote:
| That would have been a better insight to share in a
| comment.
| kurthr wrote:
| Umm, I won't comment on nationalist propaganda, but
| average annual wages in China are less than a quarter of
| the US or most industrialized countries while debt/GDB
| was 270% in 2020 and the last few years have not been
| kind (US including states is <150%). Gini statistic for
| China is also quite high, but since they don't release
| enough reliable data it's hard to tell exactly.
|
| https://worldpopulationreview.com/country-
| rankings/median-in...
| cwkoss wrote:
| Average annual salary for Chinese people has increased by
| about 2.5x in the past 10 years:
| https://www.statista.com/statistics/278349/average-
| annual-sa...
|
| Average American income has increased by only 33% over a
| similar period:
| https://www.oberlo.com/statistics/average-us-income
|
| While wages in China are still only about 1/4 of US
| wages, 10 years ago it was 1/12th of US wages. If the
| trend continues, we should expect Chinese wages to reach
| parity with US wages in less than 15 years.
| kurthr wrote:
| If you believe that will happen, you should probably
| invest all your money there. I'll note that in your chart
| the wage growth rate has plummeted over the last 10
| years, and that these are means not medians (meaning the
| US is $87k in 2021?). During the same 10y period China's
| debt grew by almost 200% accelerating and the US about
| 30%.
|
| I worked in China for almost 20 years. When I first
| arrived bicycles dominated the streets of Beijing.
| Amazing to watch it grow. I would not speculate there on
| anything longer than a 3-6month time horizon. I'll note
| that most Chinese that can do not invest there either.
| [deleted]
| dmarucco wrote:
| Are you sure that southern workers retires at 60? I don't
| think so ...
| sgu999 wrote:
| If they are sure, they are wrong. Spain and Sweden retire
| at the same age. Italy, Greece, Denmark and Norway as well.
| [1]
|
| Yes, France retires at 62 but that'll change very soon...
|
| Writing that the "north pays for the south" by looking at
| the GDP per capita instead of the GDP is... naive. [2]
|
| [1] https://en.wikipedia.org/wiki/Retirement_in_Europe [2]
| https://en.wikipedia.org/wiki/List_of_sovereign_states_in_E
| u...
| acchow wrote:
| > Japan is undergoing civilizational and cultural collapse.
|
| Certainly doesn't seem this way when you visit Japan. Sure,
| they haven't experienced wildly growing excessive consumption
| like some American states in the past couple decades, but
| their society is far from undergoing any sort of collapse.
| was_a_dev wrote:
| The French rioting is just another Tuesday.
| zitterbewegung wrote:
| I don't think we were much of a dominant superpower until after
| World War 2. Lots of Europe was decimated but our
| infrastructure wasn't and we also won the Cold War . We had
| large factories created also.
|
| If some other superpower does come around you could just try to
| find a foreign index fund and adjust your investments.
| huijzer wrote:
| > Of course a country's stock market will perform well as that
| country ascends to become the world's dominant superpower.
|
| There is probably more at play too. The number of banks, for
| example, has been declining steadily over time [1] as has the
| internet allowed single corporations connect to more buyers
| (nationally and internationally). Just think of all the local
| stores that Amazon has displaced.
|
| [1]: https://www.stlouisfed.org/on-the-
| economy/2021/december/stea...
| [deleted]
| rr888 wrote:
| Along with a 50 year bull market in bonds where yields have
| dropped nearly every year (along with inflation).
| FooBarBizBazz wrote:
| It's weird how most of the return from bonds comes not from
| yield but from capital appreciation [1], which happens
| because yields are dropping. There's something perverse and
| circular about it: "Make sure you buy your collectible widget
| today! It'll go up in value, because next year's widgets
| won't be as good! Prices only go up, because everything's
| downhill from here!"
|
| [1] Actually, is this literally true?
| FooBarBizBazz wrote:
| About [1]: I'm wrong. If you look at TLT in TradingView,
| adjusted for "dividends" vs. not, from 2003 to 2019 you see
| nominal gains of about 150% (with) vs. 40% (without). So
| most gain is from income. That's ignoring tax.
|
| Would also be good to compare to CPI to understand real
| returns. Or whatever other number seems to be a truer
| measure of inflation (house prices, for example).
| rr888 wrote:
| yes it has been true the last 50 years, as market rates go
| down the existing bonds become more valuable. But it can't
| continue forever. https://www.macrotrends.net/2016/10-year-
| treasury-bond-rate-...
| radiator wrote:
| Actually it looks like the US is already on the way of demotion
| from a global superpower to a regional power. There is no
| single country which comes as a replacement, but a multipolar
| world order instead. Many countries, mostly asian are emerging.
| dpweb wrote:
| You can only evaluate returns compared to the risk-free return
| (ie treasuries) - and favor treasuries cause less variance.
|
| Stock market success depends entirely on when in history you
| got in and got out. When it comes to US dominance over the next
| century - who knows. I do trust in Fed interventionism and
| willingness to print money - so that certainly favors stock
| market investment.
|
| Personally I find stock market is too high a variance and I
| prefer not speculate with money I can't afford to lose.
|
| Buffet himself said their biggest peak to trough was 50%. Fine
| if you're already rich and investing a fund. Not so great if
| it's kiddos college money.
| catskul2 wrote:
| I get what you're saying about "mechanically" but "cargo cult"
| does not work as an analogy here.
| dionidium wrote:
| Rumors of our impending collapse have been, let's say,
| _exaggerated_. I wouldn 't bet against the United States over
| the next 30-50 years, at least.
| TheFreim wrote:
| > To invest mechanically without thinking about what's actually
| happening in the world is cargo cult behavior.
|
| If things go badly then the money I would have from not
| investing "mechanically" would probably be as useless as the
| investments. If everything is going to decline continually it
| seems the greater reward will almost always be in the
| investment. This also assumes you only invest in the current
| world superpower, seeking global diversification would probably
| be wise if you see a major change in polarity.
| [deleted]
| hammock wrote:
| I think about this a lot when you consider the world's largest
| companies today aren't stocks but sovereign wealth funds and
| oil reserves. Similarly in days past they were other state-
| owned entities like the East India Company.
|
| The S&P 500 is not everything there is to be had...
| FatActor wrote:
| A long time ago, naive me learned that tech companies also
| invest their money and that those returns count toward their
| valuation, and that seems wildly backwards to me, but I'm an
| engineer, not a financial expert.
| [deleted]
| snowwrestler wrote:
| This has the causality backward.
|
| The qualities of the U.S. that helped it become a superpower,
| also help it have a high-performing domestic economy.
| [deleted]
| paulpauper wrote:
| _The question is whether the power and influence of the U.S.
| will grow similarly over the next 150 years as it has over the
| last 150._
|
| It does not need to . What matters is how much profits large
| companies are earning. There is no indication that profits are
| slowing. Even if GDP only grows at 2%/year, if multinationals
| generate 10% annual profit margins, that is $ that must still
| go to investors even if GDP growth is much lower.
|
| When you compare foreign markets to the US, the US still comes
| out ahead by almost every metric. There is little indication to
| suggest this will change. Every problem that the US has, other
| countries have worse. So relatively speaking ,the US still will
| be ahead.
| nimz wrote:
| Your point is valid - we shouldn't take single-country risk in
| investing. Assuming you believe the world as a whole will get
| more productive and value creating, globally diversifying your
| stocks is the answer.
|
| As an example that supports your point, the Japan stock market
| (Nikkei) peaked in 1989 and STILL has not returned to that
| high.
|
| However, even if you were incredible unlucky and had bought in
| at the 1989 peak in Japan, if you had an internationally
| diversified portfolio, you would be OK. E.g. a 30/30/20/20 Jp
| Stocks/Intl Stocks/Jp Bonds/Intl Bonds portfolio purchased in
| 1989 at the Nikkei peak would have more than doubled by 2014
| (see here:
| https://www.bogleheads.org/forum/viewtopic.php?t=265807 and
| also https://www.afrugaldoctor.com/home/japans-lost-
| decades-30-ye...).
| paganel wrote:
| > Nikkei) peaked in 1989 and STILL has not returned to that
| high.
|
| Also, the FTSE 100 has been almost flat since the financial
| crisis, so basically just a little over 10 years. It was at
| about 6300 in the first half of 2013, it's at ~7700 now, a
| ~22% return over 10 years is nothing to write home about. For
| comparison the SP500 was at ~2300 in the first half of 2013
| vs ~3800 now, a 66% return. And that's after last year's 23%
| decline.
| ar_lan wrote:
| If you continued to invest in Japan throughout that period
| after, you'd be up today. The only case you were forever
| screwed is if you really aren't pouring more money into that
| (e.g. retirement).
| bionsystem wrote:
| It's too hard to swallow for most people but you're right.
| There are significant headwinds coming ahead for most markets
| whilst productivity gains have stalled. See Robert J. Gordon's
| paper "IS U.S. ECONOMIC GROWTH OVER? FALTERING INNOVATION
| CONFRONTS THE SIX HEADWINDS".
|
| I really think millenials should consider hedging their bet,
| maybe even spend 100% of their income.
| ptr wrote:
| Nominal Swedish stock market return 1879-2012: 10.9% arithmetic
| mean, 9.0% geometric mean. Real return: 7.9%/6.1%. And Sweden
| isn't really the world's dominant superpower.
| https://www.riksbank.se/globalassets/media/forskning/monetar...
| jltsiren wrote:
| Sweden, Switzerland, and the US are obvious outliers. Their
| economies have been abnormally stable, because they have not
| faced revolutions, civil wars, foreign occupations, and other
| forms of widespread destruction in a long time.
| gumby wrote:
| Who cares about returns over the next 150 years? Even half that
| is excessive. Someone investing at age 18 might care about the
| subsequent 50 years.
|
| It's going to be a long time before some other country takes
| over the "reserve currency/investment market of last resort"
| position the US currently has. No other market is even close to
| providing the deep liquidity and rule of law the US market has
| over a wide variety of instruments.
|
| Sure, someone will eventually take over that role, but there
| are no candidates today. And, to your point: it was clear by
| the late 19th century that the US dollar would displace
| Sterling, but it took another half a century for that to
| happen. On the scale of current human lifespan, you can assume
| it won't happen at all.
| [deleted]
| MuffinFlavored wrote:
| > Someone investing at age 18 might care about the subsequent
| 50 years.
|
| With a gradual decline in exposure to equities over time.
|
| https://www.google.com/search?q=what+asset+allocation+should.
| ..
| ideamotor wrote:
| This is terrible advice. It's more complicated than this
| and depends on your situation (age, social security,
| pensions, tax deferred account timing) but generally you
| want less stocks when you enter retirement but gradually
| going back up in retirement.
| MuffinFlavored wrote:
| > but gradually going back up in retirement.
|
| Why would you want to be more exposed to riskier equities
| (a la they are down 20% in the past year) when you are 65
| years old and have no income other than dividends/bond
| yields?
| ambicapter wrote:
| Why going back up in retirement?
| ideamotor wrote:
| I'll respond in more detail later but here is a paper
| that examines it: https://papers.ssrn.com/sol3/papers.cfm
| ?abstract_id=2324930:
|
| "Accordingly, as the results support, for those looking
| to maximize their level of sustainable retirement income,
| and/or to reduce the potential magnitude of any
| shortfalls in adverse scenarios, portfolios that start
| off in the vicinity of 20% to 40% in equities and rise to
| the level of 60% to 80% in equities generally perform
| better than static rebalanced portfolios or declining
| equity glidepaths. Though as the results also reveal, in
| particular scenarios where the equity risk premium is
| depressed, the optimal glidepath includes less equity,
| and in scenarios where the goal is to withdraw at a level
| that stresses the portfolio and its expected growth rate,
| higher overall levels of equity are necessary; with such
| high-risk goals, having a relatively high-risk portfolio,
| with the danger that entails, is still the optimal
| solution (and for clients who cannot tolerate that level
| of risk, the ideal solution is to choose not a less risky
| portfolio, but a less risky and aggressive goal).
| Nonetheless, for everyone else looking to maximize a
| sustainable income level, or determine the amount of
| assets to support a (reasonable) target income level,
| rising equity glidepaths appear to both maximize the
| likelihood of success and sustainable income and reduce
| the magnitude of shortfalls when they occur."
|
| There is a a lot of discussion of this here:
| https://www.bogleheads.org/index.php. Also, this article:
| https://www.kitces.com/blog/should-equity-exposure-
| decrease-....
| zie wrote:
| > Someone investing at age 18 might care about the subsequent
| 50 years.
|
| I get what you are saying, but your math here is a bit off.
|
| 50+18 = 68.
|
| People generally can live longer than 68 years old, If we go
| out on longevity and assume people can live to 100 or 120,
| then it's more like 100 years.
|
| Your next thought is, but people will retire before/around
| 68, fair enough, but they stay invested generally the entire
| rest of their lives.
|
| So if the US dominance ends in the next 100 years, then
| today's teenagers might need to care about it. People in
| their 30's or 40's probably don't though.
|
| The next 150 years, you are right todays teenagers might not
| need to care, unless many/all of our aspirational longer
| living goals happen.
| purpleblue wrote:
| No, this is poor investment advice. The closer you get to
| retirement, the more your money should be in extremely
| short term, non-volatile investments like T-bills. You
| should not be invested in the stock market, because the
| risk is too high that you could lose a lot of your savings
| just before you really need it.
| zie wrote:
| I never talked about asset allocation, you did, but going
| 100% equities to 0% equities is not reasonable either.
|
| Yes you probably want some bonds, but you still need some
| equities.
|
| The default answer is something around 20% to 60%
| equities in retirement.
| FooBarBizBazz wrote:
| Everybody says this, but stocks and bonds go up and down
| together now. I guess it's less an issue if you're
| holding bonds to maturity and laddering, but that might
| just be psychological, not sure.
| zie wrote:
| Not really, they are somewhat correlated, but they are
| not completely correlated. Duration has a lot to do with
| it as well. Look up Long Term Treasuries(TLT/EDV are
| funds that hold these) and compare that to US stocks like
| VTI.
|
| Bonds are like buying future cash-flow, stocks are about
| future growth.
|
| i.e. if you buy a bond that's paying you $25k/yr, then
| you will get that $25k/yr regardless of what happens to
| the NAV until maturity(and/or bankruptcy obviously).
| hindsightbias wrote:
| A future US Govt default is not exactly an infinitesimal
| black swan event looking at Capitol Hill this week.
| [deleted]
| brianwawok wrote:
| Not convinced bonds are useful. There are other things
| that get you away from 100% equity.
| bushbaba wrote:
| That would depend on the drawdown rate and total wealth.
| sokoloff wrote:
| On the first day of a typical someone's retirement, they
| should probably be 40-50% invested in equities. An often
| cited rule of thumb is for your equity exposure in
| percentage to be 100 minus your age in years; others
| suggest 110 minus your age.
| GCA10 wrote:
| Directionally right. I saw older family members switch
| out of stocks at 65, only to discover that their ultra-
| safe fixed-income investments failed to keep pace with
| the next 25 years' relentless increases in medical and
| care expenses. Assuming that you're not facing an
| immediate health catastrophe, your time horizon at age 65
| is still decades, not single-digit years.
| itsoktocry wrote:
| > _Someone investing at age 18 might care about the
| subsequent 50 years_
|
| Those 50 years are part of the next 150, and are no easier to
| forecast. Most market projections are for numbers ~7%
| annually, but periods worse than that would drastically alter
| investing plans, and hence social infrastructure planning.
| JustSomeNobody wrote:
| That is why https://www.firecalc.com/ exists. The idea is
| that you save enough that over all the possible starting
| years, you would end up with money instead of broke, for
| the length of time you think you'll be alive.
| paganel wrote:
| > Most market projections are for numbers ~7% annually,
|
| Too lazy to web search for an answer, but are those real
| returns? (i.e. inflation-adjusted).
| Spooky23 wrote:
| It should give pause to people who think that the stock
| market is some sort of science. Macroeconomic conditions and
| policy influence this stuff.
| [deleted]
| acchow wrote:
| How can anyone assume the next 30-50 years of the US economy
| will be anything like its rise to superpower over the last
| 150 years.
| time_to_smile wrote:
| Or we see a contraction in globalization in general in which
| all economies shrink.
|
| It's entirely reasonable that we could enter a period of
| long, slow decline across the board. Especially as we
| continue to push the limits of natural resources and global
| supply chains.
|
| For example suppose the US continues to move its push to
| return chip manufacturing to the US. This might mean both
| that US chip manufactures have a more healthy future than
| other more fragile tech companies _and_ that they shrink in
| size. We could see a return of manufacturing to the US which
| leads to continued employment in US labor for while also
| meaning that labor force gets paid much less.
|
| We're already starting to see evidence of this happening.
|
| The concerning thing is that I'm not at all sure that our
| incredibly debt dependent global economy, which assumes
| future growth, can really handle a gradual contraction to a
| more sustainable economic structure.
|
| Either way, assuming up is the only way for the market to go
| is a very naive assumption, but one nobody is happy
| questioning.
| vl wrote:
| >We could see a return of manufacturing to the US which
| leads to continued employment in US labor for while also
| meaning that labor force gets paid much less.
|
| Interesting! Why is it happening? Shouldn't labor earn more
| in this scenario?
| bluGill wrote:
| Depends. Manufacturing in the US implies high automation.
| For those who maintain the machines there is a lot of
| money, but there are far less jobs and in turn far less
| in total in labor.
|
| Though I suspect there is more need for such labor than
| people who can do the job. Hard to say, but there are a
| lot of things we haven't automated yet.
| verdverm wrote:
| > a gradual contraction to a more sustainable economic
| structure
|
| Why do you assume that it requires a contraction to reach a
| sustainable economic structure?
|
| What prevents the economy from growing for the foreseeable
| future while also becoming more sustainable at the same
| time?
| time_to_smile wrote:
| Before answering your question, you need to first be
| clear what "sustainable" means. For me sustainable means
| that we can continue to life as we do indefinitely.
|
| Our current economic structure, due to its reliance on
| credit, requires perpetual growth and development in
| order to pay off today's debts. Debt in all forms has
| been growing increasingly and rapidly in recent years.
|
| Infinite growth is not possible on a finite planet.
|
| In many areas we are already seeing the limits of growth,
| from strains on oil supplies to global population growth
| starting to slow down. This is already, today, putting a
| strain on our economic systems.
|
| Since our current way of life can only be sustained by
| future growth, it is by definition not sustainable unless
| you sincerely believe growth to be without limit (this
| would require near term interplanetary travel and energy
| advances such as fusion). As mentioned, we are _already_
| seeing system strain suggesting we are hitting limits.
|
| Contraction is the preferable path of the two realistic
| alternatives, the other is complete collapse.
|
| How do you propose the economy growth for the foreseeable
| future _and_ becoming more sustainable?
| ganonm wrote:
| Keep in mind that the present value depends somewhat on the
| discounted future earnings, which by definition extends to
| the end of time. That being said, the associated time
| discounting heavily reduces the impact of earnings envisaged
| say 100 years from now (a 5% discount rate would mean ~13k
| USD in 100 years is worth about 100 USD now, and that's
| probably generous given historic market returns).
|
| So, the US doing extremely well 100 years from now vs. the US
| doing very badly 100 years from now could have a non-trivial
| impact on the perceived value of US assets. I suspect that
| the large uncertainty about what the world will look like in
| 100 years means there is just some sort of seldom changing
| value baked into assets to account for this, but it
| nonetheless exists, and could change if there was some huge
| geopolitical shift.
|
| And before you mention anyone on earth would be dead in 150
| years, yes that's true, however you can always sell it to
| someone later on who _will_ be alive in 150 years (or sell it
| to someone who can later sell it to someone etc. etc.).
| mint2 wrote:
| Is that actually how it works? Money has to go somewhere
| regardless of future. Whatever looks the least bad at
| present is in demand, regardless of what the returns are.
| Inflation was above tbill rates yet people bought because
| they don't have better options.
|
| It's like food. Food in 100 years does not help the need
| for food now.
| kqr wrote:
| Food perishes faster han equity indices.
|
| If there was a futures market in foodstuffs that
| basically keep forever and is cheap to store (honey?) you
| would see that the expected price of that food in 100
| years would have some effect on the current price.
| dalbasal wrote:
| Why is "reserve currency" the central issue?
|
| Also, the US stock market, US Dollar and US economy/gdp
| aren't hard linked to one another these days. The companies
| listed can be selling to non US markets, employing
| internationally, founded internationally. They're just
| listing on the US stock market because well.. that's where
| the stock market is. The US could, in theory, become more or
| less popular a stock market regardless of its currency's
| popularity.
|
| Meanwhile, both the Euro and RMB have similar size markets
| backing their currency. Neither one is currently _trying_ to
| displace the USD. I think the importance of owning the
| international currency is somewhat speculative.
| bobthepanda wrote:
| Yeah, China has already indicated that it would prefer the
| ability to implement sudden, nearly total capital controls
| rather than be annoyed with the day-to-day of a reserve
| currency.
| malandrew wrote:
| Stock markets are natural monopolies. Liquidity begets
| liquidity. What would cause companies to choose other
| exchanges and what stops the dominant exchanges from
| adapting to changes that threaten its liquidity advantage.
|
| Is there anything stopping the NYSE, Nasdaq or CME/CBOT
| from handling trades in another currency?
| PKop wrote:
| The reserve currency built atop the petrodollar system
| produces a cycle of the rest of world needing to acquire
| dollars to trade for commodities and most other commerce
| around the world. Because it gains this reserve status, it
| has stability and confidence, and thus since countries need
| it to buy input commodities and energy, they acquire
| foreign exchange surpluses by selling goods to the US and
| running trade surpluses. Since they have stockpiles of
| dollars, it is conducive that these dollars are also used
| for trade of other goods and also the creation of borrowing
| and lending demand in dollars outside of the US.
|
| If countries then acquire dollar surpluses by running trade
| surpluses with the US, the US by contrast has a trade
| deficit. This is equivalent to having a _capital_ surplus
| for the US. It means excess capital is funneled back into
| the US into the capital markets buying stocks and bonds.
|
| This is maybe a chicken and egg phenomenon..is it the
| demand to invest in the US creating a capital surplus that
| creates the dynamic whereby the $ becomes reserve currency
| and the US runs increasingly large trade deficits? Is it
| the military/political power that creates all of the rest?
| Probably all of above. But in any case the reserve currency
| system has at its core the financial markets of the US that
| the rest of world invests their surplus into, incentivizing
| them to produce in excess and trade real goods and work
| with US in exchange for paper IOU's that they can invest
| into the US markets.
|
| A big aspect of this $ financial/trade system isn't just
| the $ as currency itself but the unique and important
| position of US treasury debt as the premier reserve _asset_
| that countries store their surplus and forex reserve in,
| and which is the center piece of the eurodollar[0] lending
| markets.
|
| [0] https://www.investopedia.com/terms/e/eurodollar.asp
| lottin wrote:
| Trade deficits and capital surpluses go hand in hand.
| This is easy to see. If the value of your imports exceeds
| the value of your exports (i.e. you have a trade
| deficit), the excess imports must be financed somehow--
| either borrowing money abroad or selling assets (such as
| equity) to the rest of the world. This results in a net
| flow of money into the country, i.e. a capital surplus.
| hammock wrote:
| 100-year bond spot rate: https://alfred.stlouisfed.org/series
| ?seid=HQMCB100YR&utm_sou...
| kingkawn wrote:
| Your assumptions presume that the pace of historical
| developments is the same as it was in the late 19th century,
| which seems clearly untrue. The rate that these things
| transform today may be breathtaking.
| [deleted]
| mnky9800n wrote:
| This justifies historical investment strategies like the very
| simple buy and hold forever (only blue chips and salsa please) or
| something marginally more sophisticated like dogs of the dow. The
| real question is whether growth will continue, or at least during
| our life times, be kept afloat by unfair practices by the
| wealthy.
| captainmuon wrote:
| It's my understanding that the return on investment has been
| slowly and constantly going down since at least the 70s, such
| that it is getting harder and harder to find good investments.
| That is made more problematic by low interest rates (can't just
| "bring it to the bank") and high inflation (can't "put it into a
| sock"). This is the cause of a lot of ailments. Money rushing
| into real estate, investors requiring a certain ROI, thus
| neccessarily raising housing prices. Something similar happens in
| the health sector.
|
| How do I square that with this plot that seems to imply constant
| (although not stable) high returns for over a century? Are the
| stocks picked not representative (probably not) or not weighted
| properly? What does "adjusted for reinvested dividends" mean? (I
| could imagine in times of high inflation and low ROI, companies
| would want to get rid of cash and pay dividends, rather than
| investing it themselves for example.)
| cheriot wrote:
| > the return on investment has been slowly and constantly going
| down since at least the 70s
|
| Curious if you have a source for that?
|
| > What does "adjusted for reinvested dividends" mean?
|
| Dividends are payed out in cash and this means the analysis
| assumes they're used to buy more shares.
|
| There's an argument that the American economy in the 20th
| century is itself a selection bias. It's the most successful
| economic period in history. Other countries in the same period
| or the world economy in other periods do not have such
| spectacular returns.
| legolas2412 wrote:
| > Curious if you have a source for that?
|
| Some people think that we are facing secular stagnation, and
| the economic growth is slowing down. The avg federal reserve
| interest rates have been falling at 2% per decade for 5
| decades, and signifies less growth in the economy. Sure, this
| low interest rates have actually fueled the stock market boom
| as the value of future earnings is high, but the growth is
| not sustainable. For one, we are going to end up with some
| stable p/e ratio, and the growth of stock market because of
| low interest rates will stop. And two, the interest rates
| will also stop going down as fast, as a rate of say -10%
| sounds pretty bad in what it means for the economy (negative
| growth of that magnitude), so people do not think we will
| have such a situation.
| [deleted]
| getToTheChopin wrote:
| This data is based on the returns of the S&P 500 index, which
| is made up of the 500 largest publicly traded companies in the
| US: https://en.wikipedia.org/wiki/S%26P_500
|
| Adjusting for reinvested dividends refers to an assumption that
| the cash dividends paid out by a company are re-invested to buy
| more shares of the stock. The concept being that a company can
| pay out a cash dividend or use that money to invest / grow
| their business. Therefore, to calculate a "total return" we
| need to factor in the price increases of a stock + the
| dividends that were paid by the company.
| [deleted]
| [deleted]
| concordDance wrote:
| This is actually horrifying if you think about it for a minute.
|
| Given GDP is growing at a slower rate than this, this means that
| the rich will genuinely just get richer and get a larger slice of
| the pie while the poor get squeezed.
|
| Land/house prices will increase to the maximum the market can
| bear and as that market will be full of money from those
| inheriting from their parent's patient investment... we'll end up
| in a society where your quality of life depends on the wealth of
| your ancestors.
| fallingfrog wrote:
| That's the basic premise behind Piketty's book "Capitalism in
| the 21st Century". From wikipedia:
|
| "The book's central thesis is that when the rate of return on
| capital (r) is greater than the rate of economic growth (g)
| over the long term, the result is concentration of wealth, and
| this unequal distribution of wealth causes social and economic
| instability. Piketty proposes a global system of progressive
| wealth taxes to help reduce inequality and avoid the vast
| majority of wealth coming under the control of a tiny
| minority."
| nazgulnarsil wrote:
| enerational wealth diffuses in 3 generations iirc
| JumpCrisscross wrote:
| > _GDP is growing at a slower rate than this_
|
| Over what interval are you observing this?
| fallingfrog wrote:
| https://www.statista.com/statistics/996758/rea-gdp-growth-
| un...
| fedeb95 wrote:
| This is bullshit: past returns aren't indicative of future
| returns. You can't predict the next catastrophe. "Zooming out" is
| the perfect way to loose money, even better than CAPM or similar
| stupid things.
|
| Edit: Since I'm being downvoted, go read: "The misbehaviour of
| markets" by Mandelbrot or "The black swan" by Taleb, or just
| reflect on what "zooming " really is: averaging to keep out
| outliers.
|
| Edit 2: to put it in less salty terms: yes, now it's down 23%
| from the previous year, so probably it will go up and you will
| make a profit, as long as US economy doesn't collapse. But you
| don't know the probability of such an event, since the
| distribution of returns in markets is unknown (we're not yet at
| the limit at which the central limit theorem holds). Not knowing
| that probability, you may die before you see your return. Or, as
| said, US economy may collapse, your bank or broker will, etc.
| Meaningless risks? Perhaps in a world of gaussian distributions,
| not our.
| verdverm wrote:
| If the US economy collapses (to black swan catastrophe levels),
| you are going to have a much different set of problems and
| markets will stop running all together, the world will
| collapse.
|
| We do know that the probability of a collapse is so small that
| it is not worth worrying about for investment strategy. Better
| to worry about the things that might lead to such collapses and
| strategies to mitigate those
| fedeb95 wrote:
| My main point isn't the only risk is the economy collapsing,
| this is nitpicking
| hartator wrote:
| I think you have to see it more from "best alternative"
| mindset.
|
| This shows that long term (20 years and plus) assets are best
| held in low cost stock index funds. Over cash (inflation),
| bonds, savings accounts, or other assets. It's the least bad
| option. And you are not suggesting something else. Hence I
| guess the downvotes.
|
| Of course, markets can be irrational forever or tomorrow we
| could have a nuclear world war or aliens annex us or a meteor
| can hit us. This is life 101 though. This is not a deep
| insight.
| fedeb95 wrote:
| Not suggesting something else isn't an argument. Long term
| from now you don't know anything, you know long term up to
| now. The risk of a market crash isn't the same as of a meteor
| hitting earth, since tails of the probability distribution
| (as can be estimated, so not cast in stone) are fat.
| ManuelKiessling wrote:
| I don't know the probability of me being hit by a deathly-
| traffic-accident, therefore I will never leave the house.
| fedeb95 wrote:
| It's not the same type of risk. I'm not against risk taking,
| but betting everything in the stock market is plainly stupid.
| I'm ok with many people believing it's not however, I can
| keep benefiting from crashes ;)
| rr888 wrote:
| Credit Suisse does this every year in the Credit Suisse Global
| Investment Returns Yearbook. https://www.credit-suisse.com/about-
| us/en/reports-research/c...
|
| https://www.credit-suisse.com/media/assets/corporate/docs/ab...
| StillBored wrote:
| So at ~7% it takes 10 years to double your money. So that gives
| one about 4 doublings in ones working career. So, a bad ten year
| stretch like 98-08 which provided basically 0% over the decade
| makes a huge difference in ones ability to retire based solely on
| 401K/etc style returns and should be a strong argument in favor
| of defined benefit plans that basically pool the risk over a much
| longer horizon vs going it alone.
|
| I would have expected someone to create a retirement insurance
| pool type thing that returns something close to the long term
| average s&p returns. But if you go looking for such a thing, the
| returns are closer to 1/2 the s&p. Its really the kind of thing
| the government should backstop but... "socialism" even if the
| math works out. Which really pisses me off because its apparently
| ok to "socalize" the poor mgmt at $BIGCORP that gets a handout
| once a decade or so at the current rate after spending billions
| on stock by backs but not socialize individual retirement risk in
| a meaningful way.
| [deleted]
| dangus wrote:
| You're missing the part where ~7% is already the average
| including the bear periods. During bull periods, the market
| increases by more than that average.
|
| Between 2009 and 2021, the S&P 500 went up by 13.8% per year.
|
| Between 2005 and 2022, the S&P 500 went up by 8.3% per year
| (which of course included some market crashes).
|
| > I would have expected someone to create a retirement
| insurance pool type thing that returns something close to the
| long term average s&p returns.
|
| Target date index funds are the way to go there:
| https://investor.vanguard.com/investment-products/mutual-fun...
| StillBored wrote:
| Target date doesn't solve any of these problems except to
| shift the investments from higher return/higher risk to lower
| return lower risk as you approach the target date. It helps
| with the problem that the market crashes right before you
| retire but in exchange you lose a percent or so over the
| lifetime of the fund. And while vangard is industry leading
| WRT to the expense ratio, right there on their page they note
| that the industry average is almost half a percent just in
| expenses. Never mind the lower returns.
|
| And these days there really hasn't been anywhere to run since
| everything is so correlated. People close to retirement in
| those funds are going to be delaying retirement just like
| everyone else. -15% YOY with "safe" low risk/return
| investments really hurts.
| https://investor.vanguard.com/investment-products/mutual-
| fun...
|
| The place I was at 15 years ago when I actually had money in
| a target date fund had a 1.5% expense ratio that was buried
| in a couple of different parts, fund expense ratio, and a
| underlying security expense ratio. And then on top of that
| the place I was at the "plan provider" or whatever they were
| called was scraping another .20% off of everything. There was
| a class action lawsuit, and the plan provider eventually
| lost. But, of the probably tens of thousands I lost vs just
| having my money in a IRA with vangard I think I got a check
| for something like $100.
| getToTheChopin wrote:
| > I would have expected someone to create a retirement
| insurance pool type thing that returns something close to the
| long term average s&p returns
|
| This sounds like you're describing a defined benefit pension
| plan, or an government old age pension plan like Social
| Security (in the US) / Canada Pension Plan (in, well, Canada).
|
| As usual, higher risk begets higher reward. If you don't want
| to face the prospects of volatile returns, you'll likely need
| to accept a lower long-term average return in exchange for the
| predictability.
| StillBored wrote:
| Traditional US pension plans are all but dead except for a
| small number of people basically grandfathered into systems.
| Social security doesn't have a way to "buy up" and invest
| more to get it to say match ones yearly income.
|
| So really every individual investor is on their own until
| they get to the point where they can sell the risk and buy an
| annuity (although those tend to be terrible too largely I
| guess because they want to make $$$$ and other reasons).
|
| So, in the US outside of Social security, which isn't a
| retirement plan, there isn't any option other than to hope
| you don't have to retire during a downturn, or that you have
| to go live in a box for a few years to avoid burning all your
| capital when its value temporary falls for a couple years.
| Because there isn't any way to recover except to go work at
| walmart as a door greeter.
|
| There have been a number of articles about this over the past
| decade or two, which boil down to, in the US you can do
| everything "right" but whether you can actually retire comes
| down to a bunch of lucky decisions and market timing. So
| basically its random, with some probably of "success" of
| landing into a bucket that actually allows you to retire even
| at 65 which is well into the "everyone is dying off" part of
| the morality curve.
|
| Work till you die is the official plan, but then people might
| start reconsidering their life choices when there isn't this
| "you will retire happy" carrot at the end.
| orangecat wrote:
| You can buy very safe investments like treasury bonds. Of
| course they won't give you the 8% risk-free returns you're
| looking for, but that's the point, nothing will.
| bernardv wrote:
| Buffet's simple advice for anyone wanting to invest but not sure
| how to start - Have at least some exposure the S&P500 for the
| long run. Pretty sound advice.
| Ekaros wrote:
| Also interesting question from some perspective is putting a unit
| of currency in a market now and then in 10 years it being worth
| nearly double logical? Or in 40 years worth nearly 15 times?
| jgeada wrote:
| Note that there are 20 year periods where the net gain is close
| to 0. People starting their economically productive life during
| one of those intervals will not see any economic gains from
| investing in the stock market, and to the extent that the market
| echoes the economy their economic situation will likewise be
| stagnant. And worse, there will be all the people from the lucky
| intervals extorting these unluckly people to pick themselves up
| by their bootstraps.
|
| People born in the lucky periods almost always describe their
| results as due to hard work, never as due to luck. And unlucky
| timing is almost always attributed to personal failures, not the
| economic situation.
| [deleted]
| throwthere wrote:
| Bogus. You're assuming they invested all their dollars at the
| year 0 (peak) price an and sold everything at the 20 year
| trough. Of course that's impossible, they invested over their
| entire careers which included intervals of much lower prices.
| So much should be obvious by just looking at the sp500 graph of
| performance over time. There's no period where dollar cost
| averaging over twenty years gave a result like you're saying.
| leoplct wrote:
| 6.9% as geometric doesn't look so attractive. I wonder if a
| basket of bonds could perform better with less drawdown.
|
| If you replicate the same analysis using European or emerging
| data the results are even worse.
| waylandsmithers wrote:
| Maybe it would have muddied the site's data but it gets a bit
| better when you factor in dividends and dividend reinvestment
| keewee7 wrote:
| As long as I have been browsing the English-language Internet the
| overall mood among Americans has been that the S&P500 and US
| dollar hegemony will collapse in a month.
|
| Why is that? I'm European but the US doesn't seem too different
| from most of Europe in terms of stability and the risk of unrest.
| EVa5I7bHFq9mnYK wrote:
| On the internet, you never know who are those "Americans".
| Keywords such as "US dollar hegemony", "petrodollars" and
| "Yellowstone volcano explosion" are strong indicators of a
| certain country's troll operation.
| [deleted]
| [deleted]
| boatsie wrote:
| The argument that the US stock market always goes up over
| relatively long periods of time seems somewhat flawed to me. If
| it were true that it was always best to invest in US stocks,
| everyone's (longish term) money would flow to that asset class,
| thus undervaluing something else in return. So it just seems that
| it can't be a dominant strategy or else everyone would be doing
| it. Wouldn't that leave assets like bonds, real estate, foreign
| stocks, etc undervalued?
| danielmarkbruce wrote:
| It isn't a zero sum game. The underlying businesses have
| generated returns on the capital deployed. It can continue to
| go up forever.
| HDThoreaun wrote:
| There is a limited amount of energy we can harness on this
| planet. Seems extremely difficult to believe it can continue
| to grow exponentially forever.
| theandrewbailey wrote:
| You're moving the goalposts. Capital is not energy.
| paulpauper wrote:
| Stocks also have much more risk compared to bonds , so more
| risk compensated by higher returns .
| sokoloff wrote:
| I think you're conflating "consistently beats inflation" with
| "always best investment".
|
| That US stock market real total returns are positive doesn't
| say anything about whether all long-term money will flow into
| it.
| heneryville wrote:
| You can use the efficient market hypothesis to talk yourself
| out of pretty much any good idea.
| cperciva wrote:
| I see it the other way: Corporations can invest in anything, so
| if any asset class outperformed equities we would soon see
| corporations listed on the stock market which simply held those
| assets. (This happened with BTC, with limited success, of
| course.)
| boatsie wrote:
| Wouldn't it just be better for them to invest in more
| equities, like an investment bank?
| snowwrestler wrote:
| REITs are a classic example.
| dcolkitt wrote:
| So there are a couple of reasons that things wouldn't
| necessarily converge to equilibrium, and they're fairly well
| documented in all the asset classes you mention.
|
| Foreign stocks: There's a well-documented effect called "home-
| country bias"[1]. Basically, investors tend to buy much fewer
| international stocks and are overly concentrated in their local
| domestic stocks. There's all kinds of reason for this, but they
| mostly seem to center around regulatory barriers (typically
| harder to open a fund to invest outside the country), political
| (major pension system are encouraged to invest at home for
| patriotic reasons), and reputational (losing money overseas
| tends to make the asset manager seem more reckless).
|
| Real estate: Most governments heavily subsidize real estate
| from a combination of tax advantages and cheap credit. Look at
| how easy it is for the average Joe to buy a house with 400%
| leverage, no margin call, no capital gains on sale, and he gets
| all kinds of tax credits. Which means if you are getting those
| advantages than it's rational to invest in real estate, but if
| you look at raw returns real estate tends to underperform
| because investors with those advantages are willing to accept
| lower returns.
|
| Bonds: The disparity between equity and bond returns is perhaps
| the most studied in all of finance, and is known as the "equity
| risk premium"[2]. There are numerous explanations, but two
| major ones standout. First, bond returns tend to be anti-
| correlated with the general economy. During recessions, when
| people are most likely to need liquidity, bonds tend to go up
| whereas stocks tend to go down. Second, many large classes of
| investors are basically forced to invest in bonds instead of
| stocks. For example insurance companies can only hold a tiny
| percent of their reserves in stocks and are required to invest
| in fixed income products. Similar story with banks, and to a
| lesser extent pension funds.
|
| [1]https://www.gsam.com/content/dam/gsam/pdfs/common/en/public/
| ...
|
| [2]https://www.yardeni.com/pub/stockmktequityrisk.pdf
| 1270018080 wrote:
| Everything else goes up over relatively long periods of time
| too.
| julienchastang wrote:
| How can we have infinite, exponential economic growth on a finite
| planet?
| jpadkins wrote:
| energy and raw material per unit of GDP has been going down for
| a few decades (basically digital economy is more resource
| efficient). Sorry I don't have a citation handy.
|
| Your other assumption is we are going to stay on one planet,
| which I don't think is true. We will consume asteroids +
| resources on other planets when it is economically viable to do
| so.
|
| Also, the economy doesn't permanently "use up" earth's
| resources (other than a few exceptions that are fixed like land
| or go through a 1 way process like uranium). Water, wood, food,
| etc are all renewable resources. Even Petroleum might not be as
| finite as we currently think it is (https://www.scirp.org/journ
| al/paperinformation.aspx?paperid=...)
| dkokelley wrote:
| I guess _eventually_ the earth will be swallowed up by the sun,
| but for practical purposes economic growth happens when we
| rearrange the atoms and bits at our disposal into things that
| people consider more useful. All of the materials to create a
| car existed here thousands of years ago, but we didn 't value
| it as much until somebody figured out how to assemble it into a
| useful form.
|
| What's more, an old junk car might be valued at $3,000, but we
| can take most of the same materials and transform it into a new
| car with $15K (or other goods we consider worth more than the
| $3K car). The same finite resources + energy & labor (when used
| productively) = economic growth!
| dav_Oz wrote:
| Depends on the metric and what you mean by _growth_ per se.
|
| If no physical object is involved but rather just _changes_ or
| _reconfiguration_ of the - let 's say - human brain, in the
| end, all possible states are limited by the (overall) entropy
| of our universe. If multiverses turned out to be accessible
| (i.e. empirical objects) then according to our current
| understanding there seems to be no limit.
|
| The closest limit isn't "economical" but much more
| "biological"/"societal". If we destroy the livelihood of our
| species before understanding/appreciating it - let alone
| transcending it fully (which some folks claim to be right
| around the corner) - we are just another failed (alien)
| civilisation who couldn't get past the threshold.
|
| The mathematical "exponential" part isn't the isolated problem
| but in combination with our _limited_ understanding; _flawed_
| evaluation and the _gross deficiencies_ in our current social
| structures (institutions, governments, bureaucracies,
| corporations, distribution of resources, conflicts of
| interests, "war" ...). The current economical incentives are
| just a reflection of that.
| mikeg8 wrote:
| Growth isn't solely tied to use of finite resources. Services
| also count. Two people can exchange a service, say a massage,
| which extracts zero finite resources, and at the same time,
| creates economic output.
|
| _edited typo_
| disqard wrote:
| I've wondered about that, but it doesn't seem to add up.
| Maybe you can help me find the flaw in my reasoning (below):
|
| There's (at minimum) Time being exchanged. If A gives B a
| massage, A and B are investing that Time in this transaction
| (also, A is investing a space, a massage table, electricity
| for the physical space, etc.). _All_ of these things are
| finite, and devoted to this service. If the service were not
| provided, these finite resources would not need to be locked
| up / extracted / used.
|
| To say that the providing of this service happened in a
| vacuum of "extracts zero finite resources" seems a bit
| disingenuous.
| mikeg8 wrote:
| Thanks for engaging, it's beneficial for me to also think
| through this reasoning. I'm sure there are flaws in my
| understanding/example as well, but here is how I would
| respond:
|
| I think we are possibly using "finite" too loosely. A
| googled definition of "finite resource" is, " _A resource
| that is concentrated or formed at a rate very much slower
| than its rate of consumption and so, for all practical
| purposes, is non-renewable._ "
|
| I do not believe space would be considered finite as it
| cannot really be "consumed." occupying a space does not
| deplete the resource of the space itself. Space on earth is
| more finite than "space", but still, there are many types
| of spaces for a massage to take pace: masseuses residence,
| the client's home, a park or yard, etc. In the economic
| sense, space doesn't seem finite while it may be in the
| Physics sense.
|
| A massage table doesn't seem finite either. If its made
| from wood, leather/cotton, those would be regeneratable
| resources and tables made with metal or plastics probably
| does not meet the definition of finite as a table is
| reusable and has a very very low rate of consumption
| (replaceability in this sense).
|
| Finally the most controversial: electricity! hard to argue
| against this without some squirming but 1) if the massage
| is rendered in a space with good natural lighting or
| outdoors, electricity is not mandatory 2) humans may find a
| way to make this resource much less "finite" in the future.
|
| Using the massage example was not a full-proof attempt on
| my part, but I can imagine others examples (vocal lessons,
| tutoring, coaching, selling flowers/eggs from a farm stand
| etc) that can be done without the "finite" resources we are
| discussing. My main point was that not all economic output
| is tied to the depletion of a finite resource.
| mempko wrote:
| A message isn't zero finite resources. People think software
| is ephemeral. It's not. Software has a physical manifestation
| (should be obvious, it runs on hardware and uses energy).
|
| By 2025 the internet alone will consume 20% of all energy.
| mikeg8 wrote:
| Hello. see my response to the other comment RE finite
| resources and can you please provide a source for the stat
| about internet anergy consumption? seems suspicious to
| me...
| INeedMoreRam wrote:
| [dead]
| pcurve wrote:
| Negative annualized return for the 10 year period from 2000 to
| 2009 is actually quite frightening.
|
| "As always, Warren Buffet put it best: "the stock market is a
| device for transferring money from the impatient to the
| patient"."
| layer8 wrote:
| That's only for the money you put in the stock market in 2000
| though. Usually you continually put new money into stocks,
| which somewhat flattens out the risk. Nevertheless, you
| arguably shouldn't invest unless you're prepared to hold for
| 10-15 years.
| SketchySeaBeast wrote:
| One might paraphrase that as "those who can afford to wait".
| paulpauper wrote:
| It helps too that he lived so long an has no use for the money
| he has invested
| radiator wrote:
| Why? He has children, does he not?
| paulpauper wrote:
| he has billions but never spent more than a middle class
| lifestyle. Saving money matters a lot when we're talking
| compounding over decades.
| therealcamino wrote:
| He famously has said he will donate most of his money
| rather than leave it to his children.
|
| https://givingpledge.org/pledger?pledgerId=177
|
| He's not leaving them zero or anything, and three of the
| foundations he's funding are run by his three children, so
| they benefit from his wealth. But they won't receive most
| of it.
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