A semi-log presentation is perfectly suited for this type of data. (To be frank, I would find any other presentation to be misleading.)
It's helpful when dealing with investments because it shows percentage change more clearly than absolute: https://www.leekranefuss.com/2019/04/why-you-should-use-loga...
I would even argue logarithmic scales on charts are rarely useful. They’re inappropriately used in financial charts all the time.
It's about ~6% CAGR vs ~8% if you picked the absolute best vs absolute worst time around the Great Depression.
If you include re-investing dividends, it's about ~8% vs ~10%. You're not getting anywhere near that with gold over any sufficiently long non-cherry picked time horizon.
The even better thing about the S&P is it has relatively low volatility. You're really unlikely to put all your eggs in the S&P at the absolute worst timing. Sure, it's possible. Not likely.
* https://www.macrotrends.net/2608/gold-price-vs-stock-market-...
It was a very nice treat, but when I did the math to see how much more it would have been if just invested in the market I gasped.
Looking back in hindsight is always risk-free, though, which can lead to faulty conclusions.
This is especially true for stocks vs bonds. Because the cash flows of bonds are fixed, prolonged inflation or rate spikes can deliver a loss that stays a loss, making long-term "safety" in bonds partly an illusion.
This is only true if you look back 30 years. What will happen in the next 30 years? Do you know for sure?
And if a diversified portfolio of US stocks all suddenly go bankrupt, that probably means the US is toast and therefore bonds are screwed too.
Outside of catastrophic black swan events, like I said, stocks generally mean revert if you have a long enough time horizon to allow it
Note that almost every exchange outside the US has been flat or negative for decades. The US has held a precious position for a few generations that’s made “chart go up” feel like a given
As someone who works in finance this struck me as a remarkable claim. Upon inspection it turns out to be spectacularly incorrect. After adjusting for inflation it's actually the opposite, the vast majority of countries have seen their own version of the S&P 500 grow over a 30 year period, after adjusting for inflation, not stagnation or decline. Developing countries, particularly those in Asia, have seen incredible returns over a 30 year period, albeit with a great deal of volatility involved.
Our neighbor to the north, Canada, has seen gains that are slightly below the U.S., but our neighbor to the south, Mexico has seen about the same growth as our own, once again accounting for Mexico's own inflation.
Europe has also experienced a great deal of growth with many European countries even growing moreso than the U.S., for example Germany.
While there are examples of decline, they are in countries that are both poor and have unstable governments. Most countries that are strictly poor but don't suffer from instability have for the most part seen growth rather than stagnation.
So I don't know exactly what led you to believe your claim that "almost every exchange" has been flat or negative, but it's certainly not correct.
Worth noting that a stock exchange becoming defunct is not the same as the value of the index associated with the stocks listed on that exchange going to zero.
For example numerous US stock exchanges also go defunct. Nevertheless the value of the stocks that traded on those exchanges remains unaffected. It's not like if NASDAQ went out of business tomorrow that Google and Microsoft would all declare bankruptcy.
The level of the MSCI China index 30 years ago was HKD 70 and it's HKD 75 today. It's kind of incredible but not in a good way. Total return is less than 3% p.a. MSCI Thailand is even worse.
MSCI Korea has a total return of 7% (not bad, 4% above inflation) but it doesn't do better than developed countries.
Of course they look much better if we start right after the 1997 Asian financial crisis but, hey, it was you who talked about "a 30 year period".
I can't make sense of that example. Are you maybe comparing the level of the S&P 500 with the DAX which is a total return index?
And the US itself was flat for over a decade, with the only thing saving a domestic investor's returns being bonds:
* https://www.forbes.com/sites/investor/2010/12/17/the-lost-de...
And as a Canadian, there are different sectors that would have given me positive gains over the years (I generally own mostly VEQT, a globally-diversified ETF):
* https://stingyinvestor.com/SC/PeriodicTableofAnnualReturns.p...
And it's perhaps looking more closely at what specifically about the US has been positive:
> Looking at this data, there are two distinct periods of extended U.S. outperformance—the late 1990s and today. And what do these two periods have in common? The rise of U.S. technology stocks. Bespoke Investment Group recently created this chart illustrating this phenomenon:
> Now that the U.S. technology sector makes up over 30% of the S&P 500 (as it did back in 2000), this begs the question: Is U.S. outperformance just a technological fad?
* https://ofdollarsanddata.com/do-you-need-to-own-internationa...
Outside of tech, how much better is the general US market than any other market?
If the US becomes toast, whatever caused it to happen, and/or the geopolitical, economic consequences of it having happened, would likely be so enormous that stock and bond prices in your portfolio would be the very least among your problems.
Will the US economy completely collapse in the next 30 years?
Will the US government completely collapse in the next 30 years.
For the past century I think the answers to those questions would have been, "Almost certainly not" and "Not a chance in hell"
I honestly didn't know where they stand today, but there's definitely been movement.
If things go the way they have been for a while now, I'll be able to retire comfortably. If stocks don't gain or lose a penny for the next 40 years, I think society as a whole will have reframed retirement. If society collapses, it didn't matter anyways.
Investing in Apple 30 years ago would net a much higher return on $5k but even Apple was considered a unsafe investment in the 90s. On the other hand, Enron was considered a safe investment by many but went bankrupt almost overnight and shares became practically worthless.
Bonds can "lose value" and they did so quite strongly in 2022/23.
If you bought 20-year bonds in 2020 for $100 they are worth $60 now (and were as low as $55 in 2023). Getting $1 per year is far from compensating the loss.
They will recover gradually until they "pay out" $100 but right now they're underwater.
As to the Nikkei retort this seems to be hindsight bias and ignorance of historical context, the general consensus at the time (both inside and outside of Japan) was that the Japanese economy was going to take over the world.
Okay, and how many people put 100% of their money in at December of 1998? Versus how many people have been dollar cost averaging for the last 30+ years?
* https://ofdollarsanddata.com/now-do-japan/
Further, it's not like the US is immune to long periods of minimum returns:
* https://www.forbes.com/sites/investor/2010/12/17/the-lost-de...
Perhaps these examples are a lesson for what's important: diversification.
I understand what you are trying to say here, but it really depends on what the “risky asset” is. If you hold a diversified set of risky assets, like a stock market index fund, then what you say is correct.
However, there are other risky assets that don’t hold to this “a long time horizon reduces risk” statement. For example, if you put all your investment in a single stock, that is a risky asset that does not necessarily revert to the mean over time. Many companies go out of business, and the stock goes to zero and will never recover no matter how long you wait.
It is important to note what kind of risk you are taking.
Then bond prices would have declined (and their expected returns or interest rate would have increased) until, in equilibrium, the anticipation was that the stocks and bonds would deliver comparable expected risk-adjusted returns.
A more interesting graph would be to show me the 30 year return at each point along the way. My gues is that stocks would still mostly come out on top, but not the runaway you see here.
Risk is the chance something bad happens to you.
Held for 30 years, bonds are eaten alive by inflation. That's a bad thing that happens to you if you hold bonds for a long time.
Given the ever increasing number of people bankrupted by medical bills, divorce, child support, lawsuits, etc we're quickly moving into a world where it might be foolish to expect assets accessible to a brokerage or bank will still be there by the time you need them.
20-year and 30-year bonds yield 5% today. That's well above inflation expectations.
You can actually buy inflation-linked bonds that are going to pay you 2.5% over inflation for the next 20 or 30 years - whatever happens with inflation.
I'd argue a much better 30-year bet is that somebody like Coca Cola will be able to charge an amount for their product that reflects whatever happens with inflation much better than betting on a fixed rate of 5% that can never increase.
I didn’t say anything about “risk-free” (the closest is the second paragraph but you don’t address it at all).
I was clearly commenting on the quoted sentence “Held for 30 years, bonds are eaten alive by inflation” which has not applied since the seventies, doesn’t seem the best assumption going forward, and has an easy solution as discussed.
> reflects whatever happens with inflation much better than betting on a fixed rate of 5% that can never increase.
If your main objective is to beat inflation, getting inflation + 2.50% with certainty seems an attractive proposition! (Inflation-linked bonds have a “fixed” rate on top on inflation.)
I have a suggestion for all the many similar problems around probability: Reframe it to be more correct.
Instead of looking against the arrow of time, backwards with full knowledge ask yourself the corresponding question looking forward, from where you are right now.
And then remember that that was the position you were in back then.
Questions that deal directly or indirectly with probabilities become confusing, and frankly stupid, when you violate the arrow of time and make "backward predictions". One should just not ask that question, not even for fun. They not only make no sense, our psyche suffers when we try, even if just a little.
This is part of another kind of problems: Asking why a given answer is wrong, for example in multiple choice questions. One of the best courses I took was an audio cassette pilot license theory course. One thing the speaker said about the multiple choice part of the exam was this. DO NOT (with a lot of emphasis and repetition in the audio) try to dwell on why a point is wrong. Concentrate on the true statements alone. Reason was similar to why raising the question why person XYS is NOT a pedophile still creates the association in the brains of people exposed to statements like that repeatedly. Apart from that, the number of potential wrong statements exceeds the valid ones by many orders of magnitude.
Similarly, just do not think about problems that deal with probabilities and predictions looking backward. It's just not a valid way to think about them. If you must, reformulate to make them forward-looking.
The problem of words and thoughts is the universe checks their validity only very rarely directly and immediately. If we don't restrain ourselves, our thoughts end up not representing reality more and more. Thinking requires quite a bit of self-discipline, we have to place the missing rails ourselves.
The focus should be that the normal math formula for bond valuation doesn't account for yearly real or projected inflation.
Almost everyone I have met doesn't know how to modify the standard formula correctly unless they've already done it at some point in the past. Its not a trivial exercise.
You have to understand the formulas well enough to modify them to account for the loss in purchasing power that compounds yearly, as a difference between the interest rate and real inflation over the bond terms.
Most years, inflation has been well above that 2% margin dramatically impacting the rate of return or real yield.
The formulas do not help you at all with the knowing. or not knowing, with being able to "predict" the past vs. being able to predict the future! They make assumptions.
I would make the claim my statement is useful for what I said, which was for somebody looking back at a decision of the long ago past with hindsight knowledge.
The post was not about somebody evaluating different investments either.
Oh and thanks, I guess, for completely disregarding that my comment was much more generalized? You threw away the vast majority of it.
You can't determine logical truth in a stochastic environment except after the fact when there is objective measure; and importantly there is no personal harm in doing this either, which is a direct contradiction to what you said.
You then went way out into the weeds when you started talking about pedophiles, and truth.
Any reasonable reader would throw away the vast majority of what you had to say as useless, or worse unstable.
The underlying concepts you mention indirectly, while correct in a narrow context in psychology, bad choice of example aside, also don't have anything to do with what's being said here in this topic.
Funny, that is exactly what I saw when I read your "arguments".
> Any reasonable reader would throw away the vast majority of what you had to say as useless
You are talking about your own baseless attacks. You don't even try to argue, you replace coming up with arguments completely with going on the attack with otherwise content-free words, just accusations and insults.
I'm not following what this means. Can you please elaborate?
Bonds necessarily need to exceed the yearly inflation to retain their purchasing power. People claim these are risk free, but they aren't, even when held to maturity. You lose money from the inflation when the rate of interest is below the inflation rate which it almost surely was given the several decades of almost zero low-interest rates in that time period.
There are some general rules that anyone should know. Rule #1 is don't lose your principal investment (don't lose money). Rule #2 is don't invest in a casino, always manage your risk, and know when its unmanageable. Rule #3 invest in yourself, understand the business, limit debt, and focus on value.
People today don't realize the market has been rigged through a number of convoluted ways into that of a casino.
Price discovery is gone because most transactions happen off exchange in the dark. In 2024, over 50% of transactions occurred off-exchange in dark pools. You then also have payment for order flow, synthetic shares via options through predatory middlemen, and no real law enforcement mechanism for when those big players break the rules; and they do on the regular as they did in GME/FRC, and too many other places to count. You've also got large banks pumping the prices up through non-fractional reserve based debt backing options contracts which they use to yield farm, and profits funneled away from businesses into stock buybacks hollowing them out of any value.
No visibility, no price discovery, no economic calculation. These things fail when about 1/4 of the market is off-exchange, its been at crisis for a long time.
There is no real opportunity for investment when you allow those rules to be broken. Its not an actual investment.
What are those “several decades” more precisely?
I believe the chart below is the one you should have been linking (at least one that's public, the reports I get are subscription only so I can't share those):
https://fred.stlouisfed.org/series/DFII10
Anything less than 4% for a real return of 2-3% after inflation falls under low interest rates, and as you can see 2003-2022 this period matches that criteria, with real negative rates 2011-2013, and 2020-2022.
Notwithstanding all the unstated shennanigans and other changes to try to make the numbers look more palatable on the surface, like the YTM reporting loophole, there is also the backroom deals between blackrock to swap old low rate treasuries for newer treasuries on the taxpayer dime (1), and the abandonment of the fractional reserve system (2020, reserves set to 0% for Basel 3) which call into question more foundational issues of the money system.
1 (https://www.bloomberg.com/news/articles/2020-05-21/how-larry...)
Neither was your comment. The alternative reading "You lose money from the inflation when the rate of interest is below the inflation rate which it almost surely was given the several decades of almost zero low-interest REAL rates in that time period" wouldn't have made much sense. The interest rate is below the inflation rate when the real rates are negative - not just low.
> Anything less than 4% for a real return of 2-3% after inflation falls under low interest rates, and as you can see 2003-2022 this period matches that criteria.
How does that support the claim that the rate of interest was almost surely below the inflation rate during and that made you "lose money from the inflation" during that period? That happened only very briefly as you notice.
Investing in bonds didn't "lose money from the inflation" in 1990-2020. Actually it was an exceptionally good period to have bonds!
Buying 10-year bonds one after the other in 1990, 2000 and 2010 you got coupons in excess of 8%, 6% and 3% respectively with inflation rates over those decades around 3%, 2.5% and 2%.
The inflation over the 30 years is below 2.5%. $100 in 1990 was $260 in 2020.
Investing $100 in 10-year bonds in 1990 without even bothering with reinvesting results in over $180 in 2000.
Investing $180 in 10-year bonds in 2000 without even bothering with reinvesting results in over $280 in 2010.
Investing $280 in 10-year bonds in 2010 without even bothering with reinvesting results in over $360 in 2010.
That's more than 4% per annum - compared to an inflation below 2.5%. (I didn't include taxes but there was no reinvestment either and everything is rounded down at every step.)
You also got similar (slightly better) returns if you rolled over the bonds to keep constant duration at 10 years (and even better if you had longer duration bonds). The annualized return of the IEF ETF (7-10 year bonds) since inception in 2002 to 2020 is 4.5% - it definitely didn't "lose money from the inflation" which was just 2.1%.
The comment I made refers to the underlying process of inflation indexing a yield curve in loose terms. You seem to be nitpicking on semantics for no real reason.
You also seem to have messed up your math with regards to calculating the loss in purchasing power due to inflation of the principal and interest (coupon) of an investment.
Inflation in 1990 was 5.4%, the return was 8.2% for that year, but I see you rounded that down to 8% in your example, so I'll stick with what you rounded down to in my breakdown below but the real rate of return for that year without your adjustment was 2.8% without taxes. Taxes play an important part in figuring your breakeven.
In your 1990 example, you make $8 as a coupon payment in interest for that year at what appears to be an 8% interest rate. Inflation in that year was 5.4%.
Depending on your ordinary income capital gains bracket/investment you may be taxed on this payment anywhere from 10% to 37%.
That's between $0.80-$2.96 of that $8 in tax.
The real profit/gain after inflation losses was $2.60, absent taxes, but you have to account for your real investment which includes taxes. You are taxed on $8, not that $2.6.
We'll assume its the upper tax rate, which taxes amount to 2.96. $2.60-2.96=-0.36, it is negative so you lost purchasing power on your principal for that year but still made a real return of $5.04 in that years dollars.
Lets look at the next year (its a 10 year bond after all). You get 8%, inflation is at 4.8%, real is $0.30 after subtracting out the tax. You still haven't broken even in purchasing power from the previous year, and if you do the autosum each year you end up making an ever so slight profit because stars align, and only because you caught the top of the bond market.
Over the years rates dropped to 6% down to, 4% in 2001 which enters our low rate era.
Now the general consensus at the time in the 90s was it was a great time to buy bonds, but that was only because the stock market during that time on average lost 6% per annum (iirc), and gold was down too. Nearly everyone was losing some money in purchasing power.
Lets say you reup that bond, $100 in 2001, rates are at 4%, You invest 100 you get 140 at the end, $4 coupon payments per year. Inflation is at 2.8%.
Real gain for that year is $1.20, but you are taxed on $4, which is $1.48 in tax (@37%). Your net profit after taxes: -0.28 in purchasing power.
This gets worse later on when rates go negative as a result of inflation (2011, and 2020), you pay people at a loss for the privilege of loaning them money.
In the long-run you barely break even, maybe, and that bond bubble still hasn't popped yet.
Now these are pretty good estimates considering you don't need to know lot of financial math so long as you handle the calculations properly at the right time, there is some error but not much.
The exact gain amounts also greatly depend on how accurate that CPI calculation is and in most recent years its almost borderline fabrication to the point of uselessness. Shadowstats produces reports on CPI utilizing the older more accurate methods, and those reports show much worse losses which agree with subjective observations I've seen during that time.
The point of note is, percentages depend upon the basis they indirectly reference, you can't perform operations on them out of order and expect to get a accurate answer.
> The annualized return of IEF ETF ...
The annualized returns of bond ETFs cannot be relied upon because they all utilize shennanigans such as the yield to maturity loophole, and they do not mark to market the actual value of assets held in the ETF even when they expire.
There is also synthetic share manipulations on the options chains for those at times where the valuation and share price become entirely divorced from reality, also you don't get coupon payments on ETFs.
This is why, if you happened to be paying attention to the interest trends and purchased long-term inversely correlated contracts on a bond ETF like say... TLT ... well ahead of the FED announcing their intent to raise interest rates dramatically, you would have been significantly burned when the price didn't drop appropriately for the assets held in trust when they did actually raise interest rates.
Take a look for yourself, the TLT fund was ~99% 1.8 10YR treasuries trading at 120, FED raised rates in 2022. The value loss on the assets of the ETF put the ETF book value on a par ~$67/share in 2022 instead it remained between 120-110.
There are a lot of older people whose financial advisor told them to invest in bonds, and that market was teetering on the edge ever since 2020, and is now being backstopped through currency devaluation through blackrock/Fed partnership. This only creates more inflation, on top of the petrodollar/geopolitic adverse consequences.
The annualized returns are calculated from the prices you pay when you buy and the price you get when you sell. Whatever you think they do seems irrelevant. The fact is that you put $100 in 2002 and you get $250 in 2020 (if you reinvest the money they give you every month - if you spend it you will have only $140 left but that doesn't seem the right way to calculate things).
> also you don't get coupon payments on ETFs.
You get distributions. You know that, right?
> Take a look for yourself, the TLT fund was ~99% 1.8 10YR treasuries
That would be remarkable for an ETF that "seeks to track the investment results of an index composed of U.S. Treasury bonds with remaining maturities greater than twenty years." Where do you suggest that I look?
The price of the TLT share has dropped more than 50% from July 2020 to October 2023. Imagine if they had not been manipulating the price! (In total returns terms it's slightly better but not that much: a 48% drawdown.)
I guess I didn't interpret your statement about "several decades of almost zero low-interest rates" between 1990 and 2020 loosely enough.
> You also seem to have messed up your math
Your only issue seems to be with taxes and I explicitly mentioned that I didn't consider them, just like I didn't consider reinvestment until the end of the ten years period and I used rounded down yields and rounded up inflation numbers.
You say taxes can be anywhere from 10% to 37% - but choose to apply 37% to show the "error".
Let's consider taxes. 40% if you want, why not.
You buy in January 1990 a 10-year bond with a 8.36% coupon trading at par for $1k [for simplicity I use the monthly averages from https://home.treasury.gov/system/files/226/tnc_qh_pars_1.xls]. You get $83.6 per year, after taxes at 40% you keep $50.2. Let's say you put them in a box because you are too lazy to reinvest them. You will get then the $1000 back for a total of $1502.
$1000 in January 1990 are $1325 in January 2000.
$1502 are more than $1325. (And that's with high taxes and without reinvestment.)
--
For 2000-2010 (6.88%) you have $1000 + 10 $68.8 (100%-40%) = $1413.
$1000 in January 2000 are $1284 in January 2010.
$1413 are more than $1284. (And that's with high taxes and without reinvestment.)
--
For 2010-2020 (3.87%) you have $1000 + 10 $38.7 (100%-40%) = $1232.
$1000 in January 2010 are $1190 in January 2020.
$1232 are more than $1190. (And that's with high taxes and without reinvestment.)
--
It seems that you agree that over the three decades being discussed bonds did better than inflation (even after taxes) so I'm not sure why do you think I messed something up or what were you trying to explain to me.
> You still haven't broken even in purchasing power from the previous year
You're ignoring that the bond has appreciated from the previous year keeping purchasing power intact.
This is known as "looking a gift horse in the mouth".
(EDIT: Not true, see below.)
Searching for "Vanguard S&P mutual fund minimum 1993" shows that many had a minimum of 3000? I'm guessing that is the same general search you were doing?
I'm torn, as I want to think this isn't wrong. However, I also remember you could buy a car for 10k EASY in the early nineties. Was a pretty decent sum to make in a year. Especially if it was on top of all other expenses. I'd also hazard that for many, getting a car to commute to a job would have probably been a better investment. (Of course... this is only true if you use the car for the added productivity.)
Massive kudos to your dad for getting you to do this!
According to https://corporate.vanguard.com/content/corporatesite/us/en/c... they were 0.35% in 1990. Higher than now, but hardly "high".
Of course there are other fees involved and everything was more complex and more expensive.
Things did stabilize quite a bit after we bombed the rest of the industrial world into oblivion, though, creating a period of prosperity roughly equal in expansion to the period from the end of the civil war to before the creation of the fed.
The tight monetary policy of the Fed (dictated by the rules of then-orthodox gold standard) made the Great Depression worse:
* https://www.nber.org/books-and-chapters/financial-markets-an...
And it was only after leaving the gold standard that countries started to recover:
> In the end, recovery from the Great Depression does not begin until countries give up on the combination of the Bagehot Rule and of commitment to sound gold-standard finance. Those countries that have central banks willing to print up enough money so that people are willing to spend it--it is when you adopt such policies that your economy begins to recover. If you don’t, you become France, which sticks to the gold standard all the way up to 1937, and never gets a recovery. When World War II begins, Nazi Germany’s production--equal to France's in 1933--had doubled between 1933 and 1939. French production had fallen by 15%.
* https://delong.typepad.com/delong_long_form/2013/10/the-grea...
It was the 'sound money' orthodoxy that everyone adhered to that made things bad, and not the Fed specifically. It's not like things were any more stable pre-Fed:
* https://en.wikipedia.org/wiki/Panic_of_1873
* https://en.wikipedia.org/wiki/Panic_of_1893
* https://en.wikipedia.org/wiki/Panic_of_1896
* https://en.wikipedia.org/wiki/Panic_of_1907
And the "Great Depression" used to refer to something else pre-1930s:
* https://en.wikipedia.org/wiki/Long_Depression
It should also be noted that how the Fed (or any central bank) was run one hundred years ago, and how it/they are run now, are two different things. We've learned a lot (sometimes through painful experience(s)) about how to run economy(s).
… if the dollar is literally stuffed in a mattress or buried in jars in your backyard. Which is not the point of a currency.
Having it drop in value—at a modest, predictable rate—is arguably a good thing:
> No currency should be able to buy the same basket of goods over very long timespans through hoarding. If you want to retain the purchasing power of your money, it should participate in society via investment.
* https://twitter.com/dollarsanddata/status/159265180975079833...
Annual return on small-cap stocks: ~12%
Time to double: 72/12 ~= 6 years
Number of doubling periods: 99/6 ~= 16
Final investment value: ~2**16 ~= $65k ~= $64,417
70 is divisible by 1, 2, 5, 7, 10, 14, 35, 70
72 is divisible by 1, 2, 3, 4, 6, 8, 9, 12, 18, 24, 36, 72
if I have a calculator handy, I'll use [(69.3/rate) + 0.3] as that's really close to the actual numbers for rates under about 10 or so.
I'm curious as to what other methods people use.
Honestly, I should probably just memorize the 12 or so numbers.
For those interested, here's a mnemonic that I cooked up quick with chatGPT:
70 bears ate 35 lions who ate 23 tigers who ate 18 wolves who ate 14 dogs who ate 12 cats who quickly ate 10, 9, 8, 7 mice who ate 6.6 grasshoppers who ate 6.1 barleycorns
Look, I know this is not the best, but hey, it's Friday. Please help me out and make up a better one.
70, 35, 23, 18, 14, 12, 10, 9, 8, 7, 6.6, 6.1
I wish I had invested $1,000 back in 1926 but I was busy in a non-material state in the hyper-realm.
I wanted to buy during this year's dip but I took a look at my asset allocation and I was still way overweight in US stocks compared to my target so I couldn't justify it. Hopefully people freak out even more next time.
Stock market crashes are my happy place.
To do that kind of business you have to have mastered yourself or set up systems where the emotional rollercoaster ride doesn't change your choices.
> I wanted to buy during this year's dip...
The Stock market hasn't had a real crash in quite a long time as evidenced by a number of things including the PE values and stock buybacks, lack of general price discoverability towards chaotic whipsaws and the indexes topping all time highs.
People are going to lose the shirts off their backs when it does come, and it will come suddenly without warning. Best to keep that in mind when greed might try to lead you astray. Greed is both a friend and a trader's worst enemy.
Printing money enrolls participants in boom bust cycles. We've had a boom for the last 10+ years nearly straight. The stock market is way overdue for a crash. Its an avalanche prone area with a massive snowpack built up. There's always some chaotic trigger that gets everything moving again.
Same. Not quite dollar-cost averaging, but when I'm confident in the long term outlook of a company, if they dip, I like to buy more.
Just before the COVID lockdowns, I sold everything and went to cash for a month or so. Bought back all my previous positions right about the bottom of the dip. Massive gains on that one... hard to time things that well all the time though.
Edit: One additional thing is that you can't be emotionally invested in the investments. That's just a recipe for poorly thought out choices, and ultimately a disaster
Honestly, I've lived through four (1987[0], dot-com, 2008 recession, 2020 coronavirus) and was not tempted. For the first two, I was much too far away from retirement to worry about it, and for the third, I was still over ten years away from even beginning to think about retirement distributions, and because of my experience with the first two, again was not tempted. The fact that my investments for much of that time were in pre-tax accounts helped me avoid feeling some pain as well.
Nowadays, I try to keep, in addition to an emergency fund, about a year's worth of retirement distributions in money market equivalents, even inside my IRA.
[0]My employer started a 401k plan prior to 1987
Which is why you invest in the entire market, internationally diversified. There are now funds (mutual/ETF) that allow you to do this with a single purchase:
In practice, it would have been a toss-up between individuals' outcomes because index funds as we are familiar with them today did not exist at the time. The DJIA was a price index but there was no way to invest in the DJIA basket as there is today, so brokers picked stocks on behalf of investors. So it's certain that some investors' portfolios did decline to zero during this time due to bankruptcies of all the companies they happened to be holding.
I'm more concerned how it will grow over the next n (lets say 50) years.
Somehow, it doesn't really fit into my head that there will be another 7 doublings of money invested stock market over the coming 50 years (as others have commented, 10% annually is doubling every 7 years).
Reality is complex of course, there's inflation, there's taxes, dividends don't grow the stock market cap.
Still, I would assume less growth due to several factors. The last few decades have seen several tailwinds that can't repeat in the same way:
- falling corporate tax rates globally [1]
- falling interest rates [2] (since 1980, until 2020)
- rising P/E ratios (partly in response to falling interest rates) [3]
- demographic expansion [4]
- improvements in diversification (index funds, theoretically you need a lower risk premium than when investing in individual stocks)
And I'm not sure that headwinds coming from environmental degradation of many types are already priced in.
I still think that stocks will do better than bonds (there's a risk premium [5], those are real assets, there's innovation and growth), just be cautious about assuming that the future will mirror the past.
[0] https://en.wikipedia.org/wiki/Stocks_for_the_Long_Run
[1] https://taxfoundation.org/data/all/global/corporate-tax-rate...
[2] https://fred.stlouisfed.org/series/DGS10 (choose max in the time scale)
[3] https://www.multpl.com/s-p-500-pe-ratio
[4] https://en.wikipedia.org/wiki/World_population
[5] https://pages.stern.nyu.edu/~adamodar/ ERP currently at about 4.4%
Thanks inflation
While not capturing the complexities of modern technology, they are available across the entire period and probably have a closer relationship to people's lives than the price of gold.
I think Gold is too susceptible to price fluctuations from speculators and that you should use Copper or something that people don't hoard to re-sell.
Milk: 2.5% (*low-quality data)
CPI: 2.9%
Copper: 3.4%
Gold: 5.2%
The price of gold is a completely useless measure of inflation. Governments have a long history of manipulating its price as a policy goal. Even today, governments buy and hold large quantities of gold.
The CPI is one of the most studied and examined statistics that the government releases. Everyone from hyper-capitalist financial traders to leftist unions folks (because of CoL contract provisions) examine in and none of these folks who have a vested interested in calling out fraud have stepped forward.
There have been numerous peer-reviewed examinations about it, including open source code:
* https://en.wikipedia.org/wiki/MIT_Billion_Prices_project
There are disagreements about the "best" way to measure certain things (e.g., owner-occupied housing), but for the published methodology there is no cooking of the books that anyone without a tinfoil hat can find.
A recent profile of how the BLS does things:
* https://www.washingtonpost.com/opinions/interactive/2024/joh...
* http://archive.is/https://www.washingtonpost.com/opinions/in...
(Included as a chapter in the recent Michael Lewis (of Big Short fame) book Who Is The Government?)
And regarding gold specifically, there have been periods (that stretch over decade(s)) where gold has been flat, especially in inflation-adjust terms:
* https://graphics.thomsonreuters.com/11/07/CMD_GLDNFLT0711_VF...
The fact that it just happened to pop up over the last 2-3 years is recently bias. Your returns would have been highly dependent on when you got in for each (use slider):
* https://www.macrotrends.net/2608/gold-price-vs-stock-market-...
> In 2007, the BPP initiated Inflación Verdadera, a project that provided a daily inflation gauge for Argentina, serving as an alternative to the official consumer price index which was manipulated by the government during 2007-2016
https://www.crsp.org/wp-content/uploads/CRSP_Investments_Ill...
tiahura•8mo ago
default-kramer•8mo ago
ArtTimeInvestor•8mo ago
rokobobo•8mo ago
BlandDuck•8mo ago
_vaporwave_•8mo ago
It will be interesting to see how the next cycle plays out with the recent concentration of returns in large cap tech stocks (Magnificent 7).