12 ms·

I don't think it is fair to say that next 100 years will be same as last 100 years: 1. GDP growth is not as high as it used to be anywhere in developed world:

I don't think it is fair to say that next 100 years will be same as last 100 years: 1. GDP growth is not as high as it used to be anywhere in developed world: http://www.oecd.org/std/productivity-stats/oecd-compendium-of-productivity-indicators-22252126.htm http://www.oecd.org/std/productivity-stats/oecd-compendium-o... 2. USA is superpower at the peak. Plenty of other stock market economies hasn't been so successful. E.g. Argentina used to be one of the richest country in the world. Investing in history is easy, e.g. you can also say about Apple stock that it will always recover based on past data, but plenty of other companies hasn't. 3. Most of the 100 years we have inflation: http://inflationdata.com/Inflation/Inflation_Rate/Long_Term_Inflation.asp http://inflationdata.com/Inflation/Inflation_Rate/Long_Term_... Right now interests rate are close to zero, which is rare. Long term trends may change if we continue to operate in those climate. Edit: Inflation was factored in the graphs. Sorry I was wrong about that.

stevenmays 10y ago
> So at Year 1, we take every point on the S&P500 curve, look at every point on the S&P500 that's one year ahead, add in dividends and subtract inflation, and record all points as a relative gain or loss for Year 1. Point #3 is wrong.
- Retric 10y ago
  While inflation was adjusted for it was not accurately adjusted for as it ignored taxes. If your returns are 10% and inflation is 10% you get taxed on that 10% and lose money. PS: Now if this is for 401k accounts or something that's another story.
  - sks 10y ago
    You dont get taxed until you sell. The performance shown here is for a buy and hold strategy.
    - Retric 10y ago
      Dividends are also taxed, so even reinvesting has a cost. Granted, IRA/401k etc exist and in years with 0-3% it's not that big a deal, but over 20 years it's often a significant cost.
      - runako 10y ago
        Dividends are not taxed in tax-deferred accounts like IRA/401(k).
        Retric 10y ago
        Yes, that's why I mentioned them. Sorry, if I was not clear, though they also generally have associated fees. So again, nominal breakeven is not the same as actual breakeven.
        jpmattia 10y ago
        > Dividends are not taxed in tax-deferred accounts like IRA/401(k) Only if you never withdraw them.
    - greeneggs 10y ago
      No, you do get taxed on dividends.
      - nostrademons 10y ago
        You do, but that's why dividends are becoming increasingly rare in the stock market. Many firms are preferring buybacks instead, which cause a pop in the stock price for remaining stockholders and so get taxed as capital gains.
        sokoloff 10y ago
        Qualified dividends (which is most of them) are also taxed at long-term capital gains rates. https://en.wikipedia.org/wiki/Qualified_dividend https://en.wikipedia.org/wiki/Qualified_dividend
  - tanderson92 10y ago
    Exactly correct. From a tax management perspective, low inflation and low yields is preferable to high inflation and high yields. I'm not sure why you are being downvoted, as the dividend component of the S&P 500 is a substantial component of the total return.
  - jlebar 10y ago
    This is misleading. The question is, what is a better strategy? Like, you lose real value after this scenario, but you would have lost more if you'd have kept the money under your mattress. The only relevant question is: compared to other strategies, do you come out ahead?
    - Retric 10y ago
      I think the default option is usually to spend the money now. If your choices are go on a 'cruse' today, or invest your money wait 15 years and then pay for a cruse waiting seems pointless. If you wait 15 years and can't pay for a cruse your clearly worse off. If you wait 15 years and can pay for a cruse and have money left over then that's an advantage to investing. Sure, you can consider several investment strategy's. But, you can't see the future when your deciding what to do today. So, you can't say ahead of time what the best strategy is.
  - gnaritas 10y ago
    > While inflation was adjusted for it was not accurately adjusted for as it ignored taxes. If your returns are 10% and inflation is 10% you get taxed on that 10% and lose money. And if you'd just put the money in a mattress you're down 10%, far more than the loss of paying taxes on 10%.
- BadCookie 10y ago
  It's not wrong. We don't know how markets behave at near-zero-to-negative interest rates over long periods of time. The types of central bank policies that are in play right now are unprecedented.
mac01021 10y ago
So what alternative method do you propose for predicting growth (or decline) over the next century?
- jakozaur 10y ago
  I don't have a crystal ball. However, it would be more useful if more stock indexes would be considered than just one S&P 500. E.g. Dow Jones: http://www.macrotrends.net/1319/dow-jones-100-year-historical-chart http://www.macrotrends.net/1319/dow-jones-100-year-historica... Also from other nations.
  - encoderer 10y ago
    Nobody uses the dow. It's price-weighted. It's most famous for being reported at the 6PM local news. But seeing the Russell 2000 would be great.
  - Mane 10y ago
    Dow Jones is probably one of the least interesting ones due to the small number of stocks in it.
    - blastrat 10y ago
      it's not even the small number that makes it useless, it's the fact that it is not weighted by market cap.
- georgeecollins 10y ago
  100 years ago you would have probably mostly invested in the UK, French, German and Russian stock market as well as the US. So if you want to predict the next 100 years I would try to combine the performance of the UK and the US, on the assumption that US is going to behave economically like an existing power rather than an up and coming power. Also, just as some risky "foreign" markets did awesome a hundred years ago-- that's what the US was to the investing world in 1900, and it did great-- some will do great over the next 100 years. Some will have wipe outs as Russia, Germany and Argentina did. The future is hard to know. Really though, owning some vanguard funds is a good idea. I'd just hold on to a little real estate as well.
jknoepfler 10y ago
The author did explicitly factor in inflation.
JackFr 10y ago
> USA is superpower at the peak. That remains to be seen > Argentina used to be richest country in the world. That is not true. In the early 20th century they were top 10, but never surpassed Britain or the US in GDP per capita.
- Redoubts 10y ago
  > That remains to be seen What would a more powerful USA look like? It doesn't appear that the country is after an empire the same way the British had one 100 years ago, so raw aggression is out. I can't imagine a realistic scenario that doesn't require the implosion of other nations to embiggen America.
  - smelterdemon 10y ago
    Wealth is not a zero sum game.
    - gnaritas 10y ago
      That depends on how you generate it. When apple builds wealth, not zero sum; when a hedge fund builds wealth; zero sum. 40% of our economy is financial services now, there's a lot of zero sum wealth creation going on.
      - jjeaff 10y ago
        Even hedge funds aren't zero sum. They receive dividends on the investments they hold which is a return that is not zero sum. Of course, the more active a fund is, the farther it gets from zero sum, but it would never be fully zero sum. Additionally, financial services overall are far from zero sum. There is a great deal of efficiency and market lubrication created by financial services and if you exclude the high frequency traders, you leave a huge majority that is still quite beneficial to people on both sides of the transaction.
        gnaritas 10y ago
deleted 10y ago
[deleted]
VLM 10y ago
A tuyere is a weird, tough, heat proof, somewhat hard to make (depending on your local technological level) compressed air nozzle. If there's a steel mill blast furnace nearby, you can make a fat stack of cash making and selling tuyeres. Its kind of a specialists metalworking job in that an idiot can make one that doesn't last and falls apart at the worst possible time causing thousands of dollars of missed production, but a specialist can make a good one. If you operate a steel mill blast furnace you won't make much money without a supplier of cheap, quickly replaced, reliable tuyeres (and you also require a zillion other things...) If there's no steel mill nearby then a tuyere maker won't be in business very long. Anyway the point is much like some agriculture analogies you plop down a steel mill next to a metal shop specializing in tuyere construction and repair, and they both thrive. Take away either, and the other eventually disappears. Going back in history there is no spontaneous generation of either blast furnaces or tuyere metalworking shops separately. They always and only develop, grow, and survive together, simultaneously. Now lets talk about another pair of technologies that can only thrive in the presence of each other... the capitalist stock market, and early industrialization. Unlike the tuyere example, for both of these, without the other, they can exist, barely, but only a thousandth the size in the long run if required to operate alone. You can kinda industrialize without a stock market, communist style, but it doesn't work nearly as well. The USA is in a post industrial era. Therefore soon we'll be in a post stock market era. Stock trading will still exist, just maybe a thousandth the size, volume, and importance. Even today the decline is evident. I'd estimate a century ago "everyone" in my family and maybe in the country worked for a stock market financed industrial company, or indirectly in that all their revenue came from stock market financed industrial companies. The value of the DJIA directly influenced if the railroad expanded and therefore promoted my g-grandfather. Today? Half the population does not work (young, old, sick, unemployable, etc), my wife works for the .gov so the market means nothing to her, my sister and I work at (different) megacorporations that are so large the market cannot handle them anymore (like our employers influence the market, not the market influences our employers LOL). Many of my friends work for non-profits or privately owned/financed firms. My dad's last day at his career position in a stock market financed company was in the early 80s, and it was mostly contracting at privately owned companies for the next 20 years. I've only worked at two companies financed by the stock market and I've never had a career and probably never will. I could do pretty well without the market.
__derek__ 10y ago
This seems like a good place to insert a reference to Fooled by Randomness[1], which focuses on the point that you make in your second item. [1]: https://www.amazon.com/Fooled-Randomness-Hidden-Markets-Incerto/dp/0812975219 https://www.amazon.com/Fooled-Randomness-Hidden-Markets-Ince...
andy9775 10y ago
I think another thing to factor in is the increase in computerized trading. With more and more volume comprising of strategies that focus on the short term, it seems like the returns may not be as shown since the data the research is based on covers traditional trading periods. not just HFT, buy algo shops like PDT and Renaissance Technologies being more and more frequent players
xiaoma 10y ago
>"anywhere in developed world" I hate this terminology. If the US has, in fact, "finished" developing, then the future of the S&P will be bleak. I don't think that's the case at all, though. I think development has just started and we'll see fantastic advances in bio-informatics, solar power, 3D printing and a number of other fields in the upcoming decades. When I was a teenager, I pirated music. I seriously hope my children pirate gourmet cheeses and burritos as teenagers. I download apps that organize my notes. May they download the bio-app that lets them dunk from the free throw line.
- dragonwriter 10y ago
  "Developed" is a relative term (more fully, it would be "More Developed"), not a statement of completion (this is somewhat confused by the currently-accepted alternative, "developing", but it was more clear with the more accurate, previously common, alternative "Less Developed".)
- coupdetaco 10y ago
  But we live in the best of all possible worlds!
  - ommunist 10y ago
    Have you visited other possible worlds?
    - choosername 10y ago
      all of them, that's still nil though.
      - ommunist 10y ago
        nil has very interesting qualities.
        choosername 10y ago
hockley 10y ago
Space/Mars could start to be in play before the century is over. That's one example of a (literal) new frontier for growth.
- choosername 10y ago
  Hehe, depending on the setting in sci-fi stories, that doesn't play out well, politically, and a lot of spending goes to the military.

stevenmays 10y ago

> So at Year 1, we take every point on the S&P500 curve, look at every point on the S&P500 that's one year ahead, add in dividends and subtract inflation, and record all points as a relative gain or loss for Year 1. Point #3 is wrong.

Retric 10y ago
While inflation was adjusted for it was not accurately adjusted for as it ignored taxes. If your returns are 10% and inflation is 10% you get taxed on that 10% and lose money. PS: Now if this is for 401k accounts or something that's another story.
- sks 10y ago
  You dont get taxed until you sell. The performance shown here is for a buy and hold strategy.
  - Retric 10y ago
    Dividends are also taxed, so even reinvesting has a cost. Granted, IRA/401k etc exist and in years with 0-3% it's not that big a deal, but over 20 years it's often a significant cost.
    - runako 10y ago
      Dividends are not taxed in tax-deferred accounts like IRA/401(k).
      - Retric 10y ago
        Yes, that's why I mentioned them. Sorry, if I was not clear, though they also generally have associated fees. So again, nominal breakeven is not the same as actual breakeven.
      - jpmattia 10y ago
        > Dividends are not taxed in tax-deferred accounts like IRA/401(k) Only if you never withdraw them.
  - greeneggs 10y ago
    No, you do get taxed on dividends.
    - nostrademons 10y ago
      You do, but that's why dividends are becoming increasingly rare in the stock market. Many firms are preferring buybacks instead, which cause a pop in the stock price for remaining stockholders and so get taxed as capital gains.
      - sokoloff 10y ago
        Qualified dividends (which is most of them) are also taxed at long-term capital gains rates. https://en.wikipedia.org/wiki/Qualified_dividend https://en.wikipedia.org/wiki/Qualified_dividend
- tanderson92 10y ago
  Exactly correct. From a tax management perspective, low inflation and low yields is preferable to high inflation and high yields. I'm not sure why you are being downvoted, as the dividend component of the S&P 500 is a substantial component of the total return.
- jlebar 10y ago
  This is misleading. The question is, what is a better strategy? Like, you lose real value after this scenario, but you would have lost more if you'd have kept the money under your mattress. The only relevant question is: compared to other strategies, do you come out ahead?
  - Retric 10y ago
    I think the default option is usually to spend the money now. If your choices are go on a 'cruse' today, or invest your money wait 15 years and then pay for a cruse waiting seems pointless. If you wait 15 years and can't pay for a cruse your clearly worse off. If you wait 15 years and can pay for a cruse and have money left over then that's an advantage to investing. Sure, you can consider several investment strategy's. But, you can't see the future when your deciding what to do today. So, you can't say ahead of time what the best strategy is.
- gnaritas 10y ago
  > While inflation was adjusted for it was not accurately adjusted for as it ignored taxes. If your returns are 10% and inflation is 10% you get taxed on that 10% and lose money. And if you'd just put the money in a mattress you're down 10%, far more than the loss of paying taxes on 10%.
BadCookie 10y ago
It's not wrong. We don't know how markets behave at near-zero-to-negative interest rates over long periods of time. The types of central bank policies that are in play right now are unprecedented.

mac01021 10y ago

So what alternative method do you propose for predicting growth (or decline) over the next century?

jakozaur 10y ago
I don't have a crystal ball. However, it would be more useful if more stock indexes would be considered than just one S&P 500. E.g. Dow Jones: http://www.macrotrends.net/1319/dow-jones-100-year-historical-chart http://www.macrotrends.net/1319/dow-jones-100-year-historica... Also from other nations.
- encoderer 10y ago
  Nobody uses the dow. It's price-weighted. It's most famous for being reported at the 6PM local news. But seeing the Russell 2000 would be great.
- Mane 10y ago
  Dow Jones is probably one of the least interesting ones due to the small number of stocks in it.
  - blastrat 10y ago
    it's not even the small number that makes it useless, it's the fact that it is not weighted by market cap.
georgeecollins 10y ago
100 years ago you would have probably mostly invested in the UK, French, German and Russian stock market as well as the US. So if you want to predict the next 100 years I would try to combine the performance of the UK and the US, on the assumption that US is going to behave economically like an existing power rather than an up and coming power. Also, just as some risky "foreign" markets did awesome a hundred years ago-- that's what the US was to the investing world in 1900, and it did great-- some will do great over the next 100 years. Some will have wipe outs as Russia, Germany and Argentina did. The future is hard to know. Really though, owning some vanguard funds is a good idea. I'd just hold on to a little real estate as well.

jknoepfler 10y ago

The author did explicitly factor in inflation.

JackFr 10y ago

> USA is superpower at the peak. That remains to be seen > Argentina used to be richest country in the world. That is not true. In the early 20th century they were top 10, but never surpassed Britain or the US in GDP per capita.

Redoubts 10y ago
> That remains to be seen What would a more powerful USA look like? It doesn't appear that the country is after an empire the same way the British had one 100 years ago, so raw aggression is out. I can't imagine a realistic scenario that doesn't require the implosion of other nations to embiggen America.
- smelterdemon 10y ago
  Wealth is not a zero sum game.
  - gnaritas 10y ago
    That depends on how you generate it. When apple builds wealth, not zero sum; when a hedge fund builds wealth; zero sum. 40% of our economy is financial services now, there's a lot of zero sum wealth creation going on.
    - jjeaff 10y ago
      Even hedge funds aren't zero sum. They receive dividends on the investments they hold which is a return that is not zero sum. Of course, the more active a fund is, the farther it gets from zero sum, but it would never be fully zero sum. Additionally, financial services overall are far from zero sum. There is a great deal of efficiency and market lubrication created by financial services and if you exclude the high frequency traders, you leave a huge majority that is still quite beneficial to people on both sides of the transaction.
      - gnaritas 10y ago

deleted 10y ago

[deleted]

VLM 10y ago

A tuyere is a weird, tough, heat proof, somewhat hard to make (depending on your local technological level) compressed air nozzle. If there's a steel mill blast furnace nearby, you can make a fat stack of cash making and selling tuyeres. Its kind of a specialists metalworking job in that an idiot can make one that doesn't last and falls apart at the worst possible time causing thousands of dollars of missed production, but a specialist can make a good one. If you operate a steel mill blast furnace you won't make much money without a supplier of cheap, quickly replaced, reliable tuyeres (and you also require a zillion other things...) If there's no steel mill nearby then a tuyere maker won't be in business very long. Anyway the point is much like some agriculture analogies you plop down a steel mill next to a metal shop specializing in tuyere construction and repair, and they both thrive. Take away either, and the other eventually disappears. Going back in history there is no spontaneous generation of either blast furnaces or tuyere metalworking shops separately. They always and only develop, grow, and survive together, simultaneously. Now lets talk about another pair of technologies that can only thrive in the presence of each other... the capitalist stock market, and early industrialization. Unlike the tuyere example, for both of these, without the other, they can exist, barely, but only a thousandth the size in the long run if required to operate alone. You can kinda industrialize without a stock market, communist style, but it doesn't work nearly as well. The USA is in a post industrial era. Therefore soon we'll be in a post stock market era. Stock trading will still exist, just maybe a thousandth the size, volume, and importance. Even today the decline is evident. I'd estimate a century ago "everyone" in my family and maybe in the country worked for a stock market financed industrial company, or indirectly in that all their revenue came from stock market financed industrial companies. The value of the DJIA directly influenced if the railroad expanded and therefore promoted my g-grandfather. Today? Half the population does not work (young, old, sick, unemployable, etc), my wife works for the .gov so the market means nothing to her, my sister and I work at (different) megacorporations that are so large the market cannot handle them anymore (like our employers influence the market, not the market influences our employers LOL). Many of my friends work for non-profits or privately owned/financed firms. My dad's last day at his career position in a stock market financed company was in the early 80s, and it was mostly contracting at privately owned companies for the next 20 years. I've only worked at two companies financed by the stock market and I've never had a career and probably never will. I could do pretty well without the market.

__derek__ 10y ago

This seems like a good place to insert a reference to Fooled by Randomness[1], which focuses on the point that you make in your second item. [1]: https://www.amazon.com/Fooled-Randomness-Hidden-Markets-Incerto/dp/0812975219 https://www.amazon.com/Fooled-Randomness-Hidden-Markets-Ince...

andy9775 10y ago

I think another thing to factor in is the increase in computerized trading. With more and more volume comprising of strategies that focus on the short term, it seems like the returns may not be as shown since the data the research is based on covers traditional trading periods. not just HFT, buy algo shops like PDT and Renaissance Technologies being more and more frequent players

xiaoma 10y ago

>"anywhere in developed world" I hate this terminology. If the US has, in fact, "finished" developing, then the future of the S&P will be bleak. I don't think that's the case at all, though. I think development has just started and we'll see fantastic advances in bio-informatics, solar power, 3D printing and a number of other fields in the upcoming decades. When I was a teenager, I pirated music. I seriously hope my children pirate gourmet cheeses and burritos as teenagers. I download apps that organize my notes. May they download the bio-app that lets them dunk from the free throw line.

dragonwriter 10y ago
"Developed" is a relative term (more fully, it would be "More Developed"), not a statement of completion (this is somewhat confused by the currently-accepted alternative, "developing", but it was more clear with the more accurate, previously common, alternative "Less Developed".)
coupdetaco 10y ago
But we live in the best of all possible worlds!
- ommunist 10y ago
  Have you visited other possible worlds?
  - choosername 10y ago
    all of them, that's still nil though.
    - ommunist 10y ago
      nil has very interesting qualities.
      - choosername 10y ago

hockley 10y ago

Space/Mars could start to be in play before the century is over. That's one example of a (literal) new frontier for growth.

choosername 10y ago
Hehe, depending on the setting in sci-fi stories, that doesn't play out well, politically, and a lot of spending goes to the military.