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Planning financial investments for a 50 year time horizon when mass-market finance has really only been around since ~the 1970s is crazy. An entire retirement

Planning financial investments for a 50 year time horizon when mass-market finance has really only been around since ~the 1970s is crazy. An entire retirement system predicated on long term financial returns > GDP growth, likewise insane. There is insufficient data regardless of modeling technique to derive decent simulation-based conclusions about asset classes that literally didn't exist 50 years ago. There are decent datasets for precious metals, real estate, and government bonds, but the results aren't super encouraging for average investors.

elcct 10y ago
It is like with long term weather forecasts, people just want to have it regardless if it makes sense or not.
- dublidu 10y ago
  It's more like long term climate forecasts. We know it's probably going to get hotter.
peter303 10y ago
Also taxes have been all over the place in past 40 years. First there were no IRAs or 401ks that long ago. (But you could defer taxes in an annuity, never-sold stock, or carry-forward housing basis) Long term capital gain taxes were only lower than short term during half that time. So the wisdom is: tax law will change again. Take advantage of what you can now.
- Spooky23 10y ago
  That's why I always put more money in traditional 401k vs Roth. Bird in hand.
snowwrestler 10y ago
You're making a weird distinction by saying "mass-market finance" as if the fundamentals of asset classes change radically depending on how they are marketed. Stocks, as an asset class, have been around a lot longer than the 1970s, and they have on average grown a lot faster than GDP over that time. That makes sense since stock prices measure a form of wealth, and GDP measures income. Big difference.
- h4nkoslo 10y ago
  "as if the fundamentals of asset classes change radically depending on how they are marketed" More like the fundamentals of asset classes change radically depending on how they're regulated & taxed, who is willing / able to buy them, what the composition of that asset class is, and how much money there is flowing in and out of that asset class. And we're not even really talking about "fundamentals", since there is so much path dependency, especially in the context of drawing-down of those assets to finance retirement. A rise in variance would be bad enough. Stock prices in the long run represent a time-discounted income stream (as do all securities) (plus a bundle of legal rights, which is mostly irrelevant for individuals). It is not mathematically possible to have the stock market growing by 4% and GDP growing by 2% ad infinitum; you would have the value of the stock market exceed the discounted value of all future economic activity. There is a cogent argument that the inflation in stocks has been due to 1) more economic activity falling under the umbrella of publicly traded corporations (private blacksmith displaced by Ford), 2) capital inflows driven by privatized retirement savings, interest rate manipulation, etc. 3) a legal & economic regime that encourages "paper assets" in general. None of those are perpetual forces.
  - snowwrestler 10y ago
    > It is not mathematically possible to have the stock market growing by 4% and GDP growing by 2% ad infinitum; you would have the value of the stock market exceed the discounted value of all future economic activity. The value of future economic activity is perpetually hypothetical, so when would the reckoning arrive?
    - h4nkoslo 10y ago
      When the size of the discrepancy exceeds the risk-adjusted cost of arbitrage.
  - dragonwriter 10y ago
    > It is not mathematically possible to have the stock market growing by 4% and GDP growing by 2% ad infinitum Yes, it is. First, because there is no necessary mathematical relationship between the aggregate market cap of firms and economic output (future or otherwise). There are rational expectations that can be stated, but those aren't actual constraints, since irrationality is a real thing. Second, the economic universe from which the stock market draws value is not limited to the domestic economy, so even if there was a constraint based on economic output, it wouldn't be GDP.
spoonie 10y ago
How are you saving for retirement then?

elcct 10y ago

It is like with long term weather forecasts, people just want to have it regardless if it makes sense or not.

dublidu 10y ago
It's more like long term climate forecasts. We know it's probably going to get hotter.

peter303 10y ago

Also taxes have been all over the place in past 40 years. First there were no IRAs or 401ks that long ago. (But you could defer taxes in an annuity, never-sold stock, or carry-forward housing basis) Long term capital gain taxes were only lower than short term during half that time. So the wisdom is: tax law will change again. Take advantage of what you can now.

Spooky23 10y ago
That's why I always put more money in traditional 401k vs Roth. Bird in hand.

snowwrestler 10y ago

You're making a weird distinction by saying "mass-market finance" as if the fundamentals of asset classes change radically depending on how they are marketed. Stocks, as an asset class, have been around a lot longer than the 1970s, and they have on average grown a lot faster than GDP over that time. That makes sense since stock prices measure a form of wealth, and GDP measures income. Big difference.

h4nkoslo 10y ago
"as if the fundamentals of asset classes change radically depending on how they are marketed" More like the fundamentals of asset classes change radically depending on how they're regulated & taxed, who is willing / able to buy them, what the composition of that asset class is, and how much money there is flowing in and out of that asset class. And we're not even really talking about "fundamentals", since there is so much path dependency, especially in the context of drawing-down of those assets to finance retirement. A rise in variance would be bad enough. Stock prices in the long run represent a time-discounted income stream (as do all securities) (plus a bundle of legal rights, which is mostly irrelevant for individuals). It is not mathematically possible to have the stock market growing by 4% and GDP growing by 2% ad infinitum; you would have the value of the stock market exceed the discounted value of all future economic activity. There is a cogent argument that the inflation in stocks has been due to 1) more economic activity falling under the umbrella of publicly traded corporations (private blacksmith displaced by Ford), 2) capital inflows driven by privatized retirement savings, interest rate manipulation, etc. 3) a legal & economic regime that encourages "paper assets" in general. None of those are perpetual forces.
- snowwrestler 10y ago
  > It is not mathematically possible to have the stock market growing by 4% and GDP growing by 2% ad infinitum; you would have the value of the stock market exceed the discounted value of all future economic activity. The value of future economic activity is perpetually hypothetical, so when would the reckoning arrive?
  - h4nkoslo 10y ago
    When the size of the discrepancy exceeds the risk-adjusted cost of arbitrage.
- dragonwriter 10y ago
  > It is not mathematically possible to have the stock market growing by 4% and GDP growing by 2% ad infinitum Yes, it is. First, because there is no necessary mathematical relationship between the aggregate market cap of firms and economic output (future or otherwise). There are rational expectations that can be stated, but those aren't actual constraints, since irrationality is a real thing. Second, the economic universe from which the stock market draws value is not limited to the domestic economy, so even if there was a constraint based on economic output, it wouldn't be GDP.

spoonie 10y ago

How are you saving for retirement then?