4 ms·

> 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 r

> 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
      - malz 10y ago
        I don't believe "dividends are becoming increasingly rare in the stock market". One measure of that is to compare the S&P 500 yield with treasury yield, the latter being near a historic low, but the S&P yield near a consistent 2% for over a decade, and quite attractive now relative to treasuries. http://avondaleam.com/sp-500-dividend-vs-10-year-treasury-yield/ http://avondaleam.com/sp-500-dividend-vs-10-year-treasury-yi...
    - deleted 10y ago
      [deleted]
- 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.

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
    - malz 10y ago
      I don't believe "dividends are becoming increasingly rare in the stock market". One measure of that is to compare the S&P 500 yield with treasury yield, the latter being near a historic low, but the S&P yield near a consistent 2% for over a decade, and quite attractive now relative to treasuries. http://avondaleam.com/sp-500-dividend-vs-10-year-treasury-yield/ http://avondaleam.com/sp-500-dividend-vs-10-year-treasury-yi...
  - deleted 10y ago
    [deleted]
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.