Once I joined the military and had a steady paycheck I started putting some money away each month. Fast forward twenty-something years and I’m so so so grateful to have had that influence which gives me optionally in my life.
No doubt investing with vanguard had a huge influence on their lives and I can’t imagine how many millions have been impacted.
Dollar cost averaging ftw!
which, i reckon, might've been what made returns high as that cohort didn't invest as much while prices were down, and thus made more returns as prices grew in the future.
The recent growth in people (esp. young people) investing (from it being easier than ever, to availability of information about investing) would make prices grow higher faster. This, i predict, means future returns are actually going to be lower for this generation.
That said, I mostly invest in indexes even though I have concerns. I've just done much better over the years with index investing than investing in single stocks. Diversification is maximized in index investing.
the S&P 500 index is hand picked (by some committee iirc) at S&P.
But there's only 1 type of index fund - the total market, cap-weighted index fund - that's worth investing in as a passive investor. Not any specific index that excludes some stocks while including others.
Its been general knowledge for a long time. Even more so now, yes, but even before the internet. Famously Warren Buffett has proclaimed that the average person should be investing in index funds for many decades, for example. Bogle published his methodologies like 40 years ago. Value investing was also well understood (and is what made Warren Buffett a billionaire).
Neither of which of these strategies have seemed to overtake the public en masse, even as investing has become easier. There seems to be some disconnect in the human brain that most people can't seem to get their act together with investing[0].
Anecdotally I have been a big Boglehead for quite some time, and long talked people's ear off about it, which inevitably means I'm talking about investing in index funds (the 'holy bogle trinity'[1]). Yet, while I continue to build wealth this way, nobody I know has followed this sound advice, even as I have openly shown that its reasonably sound and likely better than most other forms of investing.
Instead, people buy stock in specific companies, or still trade crypto, or see themselves as day traders etc. with all kinds of predictable (and mixed) results.
There seems to be some allure in the human mind that drives it. I'm not entirely sure what it is, but passive index fund investing while sound, and certainly well known, isn't as 'hot' as it should be.
All this is to say, I don't think its overvalued at all. I think its still undervalued relative to performance
[0]: even when given all the knowledge and tools, though financial literacy isn't great in the US, its not the only reason behind this.
[1]: The three fund portfolio: https://www.bogleheads.org/wiki/Three-fund_portfolio
1. Living through the depression made him singularly focused on money, to the point where that's basically all he talked about
2. Throughout life, he tried everything to hustle money - normal job, individual stock tracking, index funds sure, but then also hustling collectibles at garage sales (especially rare coins, because, you know, they are also money), a wide ranging used car sales operation (he'd drive 10 hours cross multiple states to get a good deal on a car to flip), etc etc.
3. He also was pretty good with math (money is numbers), and wasn't dumb, so in the very long run he kept rough track, and realized that of all the things, index funds probably did the best, and also took like zero time. But at least he had his kinda fun doing it.
So when before I went to college (even at age 12), he'd call us up and tell us to go to a good but cheap state school, and study something like engineering that makes a good income.
So then after I graduated (from a good and cheap state school, with two engineering degrees, and also a CS degree), and got a real job, his phone calls changed to telling me to invest in the S&P 500 with as much as I could, and ignore crashes. (He would also call and try to predict crashes, some he missed (dot com), some of which he got right (2007-8), and some of which were basically fiction (2013, 2015).
So I lived like a monk for 5+ years and still live pretty frugally. I think the highest I've ever spent on my income is 50% of after tax, and it used to be more like 20-25% before house+kid.
On the plus side, working for a long time at a >50% savings rate means you're much more immune to short term work shenanigans like layoffs.
On the down side, you gotta resist buying new stuff all the time, which can be hard when there's lots of cool stuff.
I just don't get it. My father and father-in-law both did it.
As such once people can lock in a reasonable retirement they often get really conservative.
To completely cash out - as in, not be invested at all - isn't wise.
If you did dollar-cost averaging through the Depression, and didn't have any immediate need to withdraw, you'd have come out of it doing pretty well.
I also feel this way, and all of the terminology and marketing around the stock market definitely reinforces this belief. I have my retirement put into one of those diversified retirement mutual fund things which I completely ignore, but other than that, I don't mess around with stock market stuff at all. The up & down junk, trying to decide when to buy or sell, all that stuff makes me feel terrible. Same feeling as going to a casino. Not my kind of fun. I don't want anything to do with it.
Basically - total market index funds have very low cost, and the entire market has very rarely gone down 50%, and eventually recovered.
Since your company is matching you 50% (or 100%) on your contributions, if the market goes down you're losing "house money/free money" you wouldn't have otherwise.
Then after years and years they just get used to it.
It's like saying that because your sibling or friend ended up in a shitty relationship that you need to be celibate for your entire life . . . no, you don't. Just because Company A blew up doesn't mean Company B will.
And to be clear, I'm not a fan of stock picking as a core investment strategy, but I'm talking about dollar-cost averaging in equities (low-cost index funds) as opposed to stashing cash under the bed. Long-term, betting on the economy is free money.
But again, you're asking people to have a lot of trust in this executive team. Unless we have the legal and regulatory framework that can enforce that trust it all becomes very sketchy. And right now it seems like the legal and regulatory frameworks are under attack. It's becoming more a game of "who you know" and favor currying. That kind of erosion of trust is really dangerous for the markets.
There are more options than this. My savings account gives something above 4.5%, and if that rate does go down, there's CDs and stuff like that. And I assure you, I'm not poor, lol :)
Have you checked recently? Short term Treasury yields are hovering around 4% now, so I'd be surprised if HYSAs are yielding more than that today.
Incorrect. Public markets investing (which is what you're talking about here) is about betting that the market is undervaluing some business. This is fundamentally different from "betting on an exec team". The price matters a lot.
I mean, there's also some risk premia and some liquidity risk that you're being paid for, I guess.
But "betting on the competence of an exec team" is just wrong.
Day trading is gambling. Buying triple levered ETFs is gambling.
Investing in a diversified index is NOT gambling, because it isn't a zero-sum game, where you have winners and losers. You are investing in the growth of the economy as a whole.
It's been shown to be a mostly rewarding strategy over the last century of so, averaged out at least, and so of course it's not really a foolish bet for most folks, but it's not the only way to secure one's financial health and isn't the ideal one for everybody.
Scrappy hustlers, skilled trade workers, and (SMB-scale) entrepreneurs in particular can often see a better return by investing in themselves and in ventures in their own community, where things are not so passive. Likewise, people with modest dreams and a preference for stability often might prefer securing a paid off house, car, etc before throwing too much money into the casino -- even on good bets. And others with strong and healthy family bonds benefit most by prioritizing enrichment and opportunity for family members who can be trusted to return the favor in less flush/capable times. etc
Many young people have only really been exposed to the idea of market investment as a retirement strategy, and its a good one for many, but there are a lot of roads to staying financially healthy through late life.
You don't understand the power of diversification in portfolios. Yes, there are plenty of individual ventures that will return more than an index fund. But individual ventures are fundamentally volatile. They are volatile because human beings are not machines. People burn brightly and then burn out. People push hard and then fall sick. Cultures and institutions and trust are painstakingly built, and then wiped away in an instant by ideologues.
As an individual investor, you have your labor and your savings. You cannot productively diversify your labor, but you can diversify your savings.
When he died in his 90s, his car was the one he bought to visit my parents when I was born.
They really did feel like this bastion of customer focused passive investing in the brokerage industry for a _long_ time. They eventually helped seriously popularize index funds to the point where every major firm offers a low cost index fund, because they have to to compete. They continued to lower their fees whenever they could to the point where VTSAX is .04% (with their ETFs being even lower).
He even turned down an offer to create the first ETF (I forget the guy that brought the idea to him), but he explained the idea to Bogle and Bogle politely declined because he thought that having the ability for intraday trading went against the Vanguard model of set and forget passive investing. That guy eventually went to the firm that runs SPY, if I recall from the book. They eventually began offering ETFs, obviously, but Bogle was always more of a mutual fund guy from the way that book puts it.
Bogle really seemed to be for the people. The man was wealthy, but not nearly as wealthy as he could be because they continued lowering fees. Their mutualized fund structure is also a massive part of that.
After he left Vanguard, you saw more traditional brokerage offerings - more active funds and more pushes for offer advisors to you over the phone. If I recall, Bogle expressed some displeasure in that.
You can tell I'm a Bogle fanboy, but I'll gladly wear that badge.
[0] https://www.goodreads.com/book/show/42938221-stay-the-course
I think Fidelity's Net Benefits (which I believe is distinct from the personal site) is pretty bad though.
For an example of a thing I hate about the new web interface is trying to buy a stock. You end up in some different part of the website where after you place your order it shows you a differently formatted order status page than the normal order status page. There's an Exit button at the top. Pressing the Exit button will pop up asking if you want to leave because you'll lose all your unplaced orders, of which you have none because how you got to the Order Status page was by fully placing an order. It's confusing for no reason.
On the one hand total market index exposure is fantastic.
On the other it’s accumulating more and more with a few firms giving them exceptional power.
Does this unravel at some point? It’s hard to think the index itself could go bad but perhaps everything behind the scenes could fall apart?
I think that the next step will be for individual investors to instruct that their shares be voted according to certain guides. And then the step after that will be for large index investors to be able to directly vote their shares.
In theory, capitalism could fail completely. In theory, governments could stop inflating their currencies. I sure wouldn't bet that way though.
I have some thoughts on this. Not because owning a home is a bad idea, but because you should really factor what you're buying and why. None of this is to say your premise is incorrect, but merely there should be more nuance when thinking about this.
Buying a place you want to live in is fundamentally different than buying an investment vehicle.
I currently rent an apartment, but also own multiple investment properties. Why? Because it makes more sense for my situation, where I myself may need to move more often and therefore some aspects of being in a home that isn't turning profit into my pocket are undesirable, where as buying a house where I am going to live has a very different set of checkboxes, namely between economic issues in the macro and personal health stuff where myself or my wife have to travel a bunch, we're regionally limited and have determined we may or may not want to live in our current metro long term.
That said, I absolutely did buy one of the properties with the future intent of living there myself, I simply am delaying that to make money on the property rather than letting it sit empty. I'm easily a few years away from permanently moving into it myself, but in the advent I decide to live elsewhere long term than where I am right now, I at least have the income stream.
and absolutely, the regulations (and there by, the law) favors home owners every time. Renters get screwed in this I even tell this to young renters who rent from me. You simply can't get a break on the ever growing rise of rent vs a fixed rate mortgage, but you gotta understand what you're buying and why, and don't conflate the difference between a home and an investment vehicle, as many people do.
A house is a depreciating thing you can live in, and is expensive! Once you correctly account for ALL the expenses (not just mortgage, insurance, and property tax!) you discover that renting may be advantageous.
But they do often go up in value over time (ignoring maintenance keeping them together) and sometimes beat inflation (especially when leveraged).
That way, when you retire, your nest egg can go further because you only have to pay the property taxes, and when you die, you can pass the value along to your heirs and build generational wealth.
Houses are not index funds; ideally they should only appreciate at the rate of inflation. But they are absolutely long-term builders of generational wealth through the equity in the home. Heirs can sell them and then invest the proceeds, or live in them themselves without a mortgage.
Housing where it is "affordable" (read: median salary can afford a house) is a great way to get a leg up on the pile - though remember that the average age of a person RECEIVING and inheritance is 60.
But in places were buying a house is $2m but renting the same one is $3k a month, it's hard to ever make the numbers work.
Where I live, what renting currently gets you is an enormous discount compared to the cost of a mortgage and the opportunity cost of parking your cash into a downpayment. Renting and investing downpayment level money is literally a better deal than buying a house.
Why do I care if I'm "paying someone else's mortgage"? The interest payments to the bank aren't building me equity either! It's all money, going one way or another, equity is just more money, and sometimes buying a house means more money goes out than in compared to renting, even if it's more intuitively satisfying.
This helped us tremendously. Rental income while not game changing when you own only 1-2 properties, does help build up your assets. It also allows you to offset some expenses as business expenses, which is nice.
There is overhead of course, and we pay a property management company to do things on our behalf and they get a small percent of the rent every month, but overall it taught us a ton and we did it without incurring significant additional expenses thankfully.
Now we are up to our 6th rental property and things are going smooth so far.
This is building true wealth via real estate in my opinion. Assuming we keep going, we'll likely own 12+ properties eventually, which we will sell down the road many years from now likely for significant upside, all the while having steady income coming in from them until we sell.
And since you're usually in one or two properties to start, if your first one is the tenant from hell in a downmarket, you're going to feel it.
Nothing else will let you take a government-protected 30 year fixed rate loan at rates barely above what the US government itself pays, that you can pay off anytime and cannot be called, leveraged to 80% or more.
And then the loans are often non-recourse, and the asset protected in bankruptcy.
https://johntreed.com/collections/real-estate-investment/pro... has even more ways that the government is fighting hard to force you to accept leveraged appreciation.
A lot of people find their first house too small and buy a larger house later. IMHO, most people have an idea of how many children they'd like to have and some idea of when. I think the idea of the advice is not to buy a small house that fits your needs as a single person and wait until you have a family to buy a larger house that fits your needs as a family, but to just buy the big house?
a) If you buy your first one big, maybe it will be big enough and you won't need to switch. That saves transaction costs, and keeps you price anchored to your first purchase. If your house is in a state with something like Prop 13 that effectively anchors property tax to purchase price, buying the final house earlier can save you a significant amount of property tax over the years.
b) I think house prices rise faster on larger homes than smaller homes (especially condos and things). If that's the case, buying a right size house first then a new right size house later if your needs grow means you'll have a larger gap to cross over time.
c) probably something about house prices always going up, it's implied in a lot of arguments (and it works except when it doesn't ...)
On the actual whole, they haven't. In the last few years, salary increases did for the time period of 2020-2023 (as far as I am aware that is what we have data for around this assertion) but generally they have not.
IMO, a better measure is how well have salary increases kept up with gains in productivity, and when you look at that its truly abysmal.
For example, I might be a member of a guild that keeps my salary nice and high while having the negative effect of keeping the productivity of the guild constant, which would be bad for society, but good for me.
Also, we are mostly software developers here, and dev salaries certainly have kept up with inflation.
I was saying this in reference to how much we get paid. As a reflection of value / worth. Compared to the value generated, our salaries are relatively small, and its hard to argue otherwise when you look at productivity gains.
If you want to capture more of those gains, being invested in index funds is a good step in that direction.
>Also, we are mostly software developers here, and dev salaries certainly have kept up with inflation.
Even if this is true - and I don't know that it is so broadly true that it can be accepted as the median circumstance of HN users - that situation won't last forever, and more importantly salary is not controlled by you its controlled by another entity.
The entire premise of the conversation is convert your salary - something you may depend on but isn't something you have sole control over - into things that you do have more control over (index funds) or effectively sole control over (real estate investments most commonly).
This allows you to decouple your wealth from any single entity, which is the central goal.
You should really look at real estate one of two ways when buying.
Either you're buying a home and you live there. Its unwise to treat that in the same vein as index funds. While its definitely an asset, the mindset of living vs investing in something isn't the same, and I recommend not conflating the two.
On the other hand, if you buy real estate as an investment you should remove any thoughts about it being a living space for you and/or your family. At that point, it should be seen as something you'll rent out to others (primarily the best way I currently have found to turn a profit on investing in real estate) or doing more speculative house flipping ventures, home builds etc.
I don't really think this blanket advice is the best advice. I do think its important to own your home - simply because of how society is structured, it heavily favors home owners, plus rent is simply lining someone else's pocket, where as eventually owning a home free and clear removes a major liability from you life. To simply buy the 'biggest you can reasonably afford' could land one in a bad place
I personally think it should be one or the other - you either are buying real estate as an investment vehicle (to flip, rent, speculatively build etc) or buying it to live in, but in which point you don't treat it as a primary store of wealth - but unfortunately home ownership in the US is structured that if you buy and live in a home, you inevitably end up with it being treated as both a store of wealth and a home in which you live, and you're constantly tugging between the two things which have very different considerations.
I think a land value tax and liberal zoning laws would go a long way to fixing some of this, but is another discussion entirely
I think this would be fine if the government was willing to eat some cost of mortgage adjustments. The biggest problem with price decreases in what I believe to be in the way you mean - that existing home owners see their values drop - is one the mortgage is underwater you have an upside down situation for both the owner and the bank.
One way to offset this is if the government eats the difference in some way. I don't exactly know how this would be structured, but if this were to be the case, I imagine it would go a long way to getting more people on board with housing reform.
It shouldn't have ever been treated like a store of wealth to begin with. You're either the homeowner or the landlord, this middle path of being both your own homeowner and effectively treating it as a store of wealth - there by in a sense making you your own landlord if you will - is the problem.
Strongly disagree with this. Buy the house you need, and only if you intend to stay there at least 5 years.
On the one hand I acknowledge the US tax code and housing policy encourages home ownership, but on the other, you're completely discounting the utility costs, maintenance / reno drag, and transaction costs that come with owning more home than you need.
While I was moving every year or so for new opportunities, I happily rented. When I moved to a local tech hub where I felt I could put down roots? I happily bought, but I only bought what I needed.
I saw a lot of classmates buy a home prematurely, and effectively be 'stuck' looking for work in the same small job market their whole career, where moving really helped mine.
I see the situation as this: The middle and upper-middle class have become invested in a perpetuating a system that ultimately will strangle them or their descendants.
Wealth begets wealth, power begets power. It might be a law of nature that things like to polarize. Likely we'll see a return of society consisting of two groups: rich and powerful, poor and powerless.
Most older engineers I meet seem to associate with the mindset and politics of billionaires and multi-millionaires, and see themselves almost in the same club sometimes. I guess making a lot of money does that to people. Add to that the truth expressed by Steinbeck about the USA "The poor see themselves not as an exploited proletariat but as temporarily embarrassed millionaires."
I think we have a problem where housing and stocks must continue to make return on investment. Housing prices must keep raising, hurting the next generation. Young people increasingly don't have the luxury of job stability to buy a home. Companies must keep increasing profit, leading to offshoring, outsourcing, stricter working conditions. And now middle class government jobs must be cut and privatized so that capitalists can make profit on providing a service. All the while the top percent owns and increasing share of the wealth pie.
I felt I needed to reply because while what you are saying is the way things are, I wish it didn't have to be that way.
why not? its an basket of stocks. correct me if i'm wrong but in the long run, index beat out stock picking.
i did some stock picking just for fun. two of my picks that i put real money into end up badly that i lose money.
Passive investment breaks that approach, because you're basically buying shares in every company in an index, regardless of its performance or future prospects.
And if passive investment is 1% (as it was back in the 90s) of the market then that's not a big deal, because most of the investment should still be based around performance and productivity. Nowadays its more like 50% - but what happens when that gets even higher? Does the stock market still work effectively if 90% of the money is just blindly invested without any regard of individual company performance or merit? 99%? 100%?
I don't know. But we may well reach a point where the inefficiency of passive investment creates serious problems.
companies lucky enough to be listed in the S&P or whatever would get a huge influx of cash, but their actual quarterly performance wouldn't change whether people buy/sell their stock because people aren't picking and evaluating individual companies. so... what would determine their price?
But then it's no longer your theoretical market that is 100% passively invested.
and it's not even that the index fund is driving price discovery of the aggregate market because people using these funds just keep dumping money in on a schedule because they've internalized the message "time in market beats timing the market".
That would never happen, because the more a market tilts towards index investing, the larger the incentive and opportunity that active management has to exploit misspriced assets. The trick is that the very act of exploiting that opportunity updates the price and eliminates it long term, and the harder it becomes for active investors to find misspriced assets.
TLDR: Active managment effectively performs a service to the market, and gets rewarded for it, but the reward is small and fleeting
Because when you say a stock is undervalued, isn't what you're really saying is that you think it's value with increase at a higher rate than the rest of the index in future, because it will attract above-average rates of investment from other active investors? Or to put it another way, "in the future more people will want to buy this stock than other stocks, so its value will go up".
But if everyone else is the market is investing passively, where does disproportionate future demand come from?
I've never argued that there are not market inefficiencies that can be exploited by active managers, but the twist is the very act of exploiting those opportunities quickly eliminates them. Thus why it's so hard for an active manager to beat index funds long term. If you're worried about a few high market cap companies dominating stock indexes, you could always tilt towards small cap value. That sector has under performed for decades, but every dog has it's day.
If it becomes untenable to trust firms to manage index funds, it would be possible , if onerous, to replicate at least a S&P 500 in a retail brokerage. There's a lot of nice things the fund does to earn their 0.03% expense ratio that you'd miss out on, especially convenience; but you'd also be able to vote your shares as you wish for all that that's worth.
The indexes themselves I don't think can stray too far from their mission, or funds will throw a fit, S&P 500 index consideration is nearly a mechanical judgement. At the tail end of companies on the 'all market' type indexes, there's perhaps room for shenanigans that could be material for those doing the manipulation, but given the realities of a market value weighted index, it won't make much difference to those following the index if an inappropriate company is added to the index and followers have to spend 0.001% of their fund on it.
Which firms are you referring to? Firms like Vanguard or firms like Apple?
I don't really see how Vanguard gets "power" here. They have no choices. They can't deviate from the index, so the money they control doesn't give them "power" to affect anything.
Or if you mean firms at the top of the index like Apple, they owe their power to their competitiveness and profit-making ability. I don't really see how inclusion in indexes inflates their power, except in an arguably slightly higher stock price. But it's not allowing them to engage in "powerful" behaviors they wouldn't otherwise. Apple isn't buying up companies it wouldn't if it weren't in index funds, for example.
https://www.vanguardinvestor.co.uk/investments/vanguard-life...
So while they can't easily pick and choose which S&P 500 stocks they include in a fund like that, they can decide if the S&P 500 is 1% or 10% or 50% of what that fund invests in. And given the total amount of investments they have, if they decide to move towards or away from certain countries/indexes/etc that could have a significant impact.
They do have voting rights in companies that are part of the index. In my judgement, that's the more reasonable interpretation of the GP's point.
On the other hand, the more of the market held in index funds, the less is available to active investors to perform their valuation service, as described elsewhere in this discussion.[0]
The problems in the world that would result in the entire top line public companies falling apart that make up the TSM or even S&P 500 fall apart protractedly - not like a few companies getting knocked out and replaced by others but the _entire concept_ failing - would be of such magnitude that people's retirement savings would probably not be the 20th thing on their list to worry about. Look at how COVID even at its worst could barely knock things down more than 25% or so for a few months.
I noticed he didn't really have much in the way of suggestions for the individual beyond suggesting DFA funds. Given those aren't easily available without signing up for their advisor services, I am deeply skeptical that the savings would be enough to pay for their fees.
In 2019, they banned trading of leveraged and inverse funds, ETFs, and ETNs. It's one thing to keep these products out of managed portfolios, but another entirely to tell their self-service customers "you can buy and sell anything on the market, except not these ones anymore". It's apparently fine with Vanguard if someone loads up on GME and AMC, and even MSTR though (a company that acts as a heavily leveraged Bitcoin fund). Ironically, Vanguard is a 10% owner in all three, presumably due to the forced allocation of their passive funds.
In January 2024, they clarified that crypto-related products will not be offered because "we do not currently believe that there is an appropriate role for them to play in long-term portfolios". Well dang, maybe if you force your other hot opinions on my portfolio, I'd be beating the market. Microstrategy is just a leveraged Bitcoin fund, so why not ban your customers from trading that one stock too, and remove that one specific company from all your passive funds? I wonder what that trading strategy is called - where you pick and choose which assets go into your portfolio to try and beat the market, instead of investing in all of them proportional to their market cap? I think John Bogle was known for that style of investing, right?
In May 2024 Vanguard raised their ACATS transfer out fee from $0 to $100, making it costly to leave their brokerage, since they knew some customers would want to start leaving due to these changes. They also added fees for processing of physical CDs, class action settlement recovery, and phone orders. Anyone who didn't notice the water temp rise has to pay $100 to jump ship to a brokerage that doesn't artificially restrict which products you can trade. Which as far as I know is every other brokerage out there.
That's to say nothing of their botched and piecemeal account portal redesign. What a mess.
IMO, Vanguard should just shutter their brokerage entirely and focus on what they do best, which is to be a low-expense-ratio passive mutual fund and ETF manager.
When you invest in an American stock market index fund, you get a highly diversified financial instrument at a fee that is so low that it is nearly free. You're buying into the proceeds of the strongest cultural force that is stronger in America than anywhere else in the world: greed. The force underlying your investment is that every CEO of every public company in America is working to make you richer, because if they succeed at making you richer, they've made themselves much richer in the process. You are investing in the greed of thousands of public company CEOs. When their greed pays off, you get paid off.
No American president, least of all Donald Trump, is going to stop the raw power of American greed, and that's not going to change without some kind of religious revolution of morals in a country that has become increasingly less religious over time.
martinky24•2h ago
kfarr•1h ago