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 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.
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.
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.
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-...
https://www.crsp.org/wp-content/uploads/CRSP_Investments_Ill...
tiahura•12h ago
default-kramer•11h ago
ArtTimeInvestor•11h ago
rokobobo•11h ago
BlandDuck•11h ago
_vaporwave_•10h 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).