4 ms·

You know that 7.1% average doesn't mean 7.1% every year. Anyone that didn't panic sell during the crash has recovered. There are ways to handle the risk of a

You know that 7.1% average doesn't mean 7.1% every year. Anyone that didn't panic sell during the crash has recovered. There are ways to handle the risk of a crash. #1 is to not play the high risk-high reward game if you are near retirement or already in retirement. You can't handle big swings at that point, since recovery could take 10 years and you're already 70. #2 is to have a liquid emergency fund, so you don't have to sell low if you have a big problem during a crash. #3 is to not panic sell during the crash...

Steeeve 9y ago
> Anyone that didn't panic sell during the crash has recovered. What does 500 shares of Pets.com sell for these days? All the people who had pensions heavily invested in Bear Stearns High-Grade Structured Credit Enhanced Leveraged Fund came out OK after a bit of time? --- Investment carries risk at all levels. The longer you play the market, the more likely it is that you'll get burned at some point. Professional investors can come up with plans to hedge their risk and avoid calamity. Some of those plans might even work. People who go straight to work out of high school are not professional investors. "Panic selling" is not always a choice, and it's not always even possible. And no, not everybody who lost a boatload of money during any particular crash ended up OK because they decided to let their investments coast.
- MagnumOpus 9y ago
  You are building strawmen. The suggestion was to "invest into the stock market", not to "gamble on the single riskiest stock you can find". If an amateur invests their money into a passive index fund or even a diversified equity fund like, say, Fidelity Magellan, they would have done well over any 20-year span. Nuff said.
  - Steeeve 9y ago
    Both of the investments I referenced were solid until they weren't. My adult life has seen 3 major market crashes and a terrible recession. I've watched neighborhoods go into foreclosures on 80% of their homes. I've had friends go unemployed for over a year. When I see people spread investment advice as if there's no downside, I have to shake my head. There's money to be made in the market, but it's not without risk. The Nasdaq Composite lost 78% of its value as it fell from 5046.86 to 1114.11 in the dotcom crash. The S&P 500 declined 57% from its high in the housing crash. The Dow lost more than 5% in a single day at least 5 times in 2008. The next time one of the major indexes drops 700 points in a day look around and tell people "you'll be fine if you don't panic sell. Think about it in 20 year increments. It'll all average out. You're money is all in an index fund, right? Those are totally safe. You didn't want to spend anything during this presidential cycle anyways." Where was the index fund advice in '98? Where were all the people who had well balanced / well hedged portfolios in '07-'09? I'll tell you where they weren't. Every house with brown grass that the banks had foreclosed on and decided not to keep up. There was an army of day-traders once upon a time not all that long ago that blew all kinds of sunshine up people's asses about investments. There's no reason to. People who have the money to can invest if they want and if they do they should learn about the risks and ask the people who are giving them advice how they fared during the crashes. If those advisors don't admit it was hairy and ridiculously stressful, they are lying through their teeth. Index fund advice became widespread after '08. Now Black Rock, State Street, and Vanguard own majority stock in 440 S&P companies. You aren't invested in the S&P500 anymore. You are invested in BR/SS/VG management. Who aren't incentivized towards the interest of any particular firm. What happens as these funds grow? If investors herd to passively managed funds, what's the outcome? Faster cycles. The indexes do more securities lending, which makes them less liquid come crash time. Do investors know that these funds will have liquidity problems if the market goes belly up? A whole shitload of people are going to learn the term "halting redemptions" really quickly. Do investors realize that the growth of passive investment increases anti-competitive behavior? Which isn't good for the economy and sure as shit isn't good for small investors. But by all means, keep shilling the passive investment advice as if you've been doing it for 40 years. Then complain with the rest of the country that the funds should have been regulated more and how people should have known not to give that much power to so few companies in the financial sector.
    - lodi 9y ago
      > Both of the investments I referenced were solid until they weren't. No they weren't, not even close. Investing all your money in one company (whether Pets.com, McDonald's, or any other) is not, and has never been, "solid". Also, the words "leveraged hedge fund" should tip you off that that wasn't a low-risk investment. > When I see people spread investment advice as if there's no downside... Seriously? No true scotsman... err investor... would imply that the stock market is risk-free. Of course there's risk! It's literally the second-most risky/lucrative investment you can make (next to options trading). But the argument is that investing passively in a well-diversified index shifts most of that risk away from total loss--as in your examples--and into more manageable risks, e.g. waiting for the market to recover. > The S&P 500 declined 57% from its high in the housing crash. Sure, and then it grew 232% in five years to restore itself. > You didn't want to spend anything during this presidential cycle anyways. That's right, we're talking specifically about long-term savings; money that you're not planning to use in the next 5, maybe 10 years. If you're buying pets.com stock with next month's rent money, that's on you. Stock market isn't for everyone; buy T-bills if you want a safer investment. And by the way, in the context of this thread, money spent on tuition is also money that you can't spend in this presidential cycle, or the next! The break-even on something like med-school could easily take three presidencies or more. > The Dow lost more than 5% in a single day at least 5 times in 2008. The next time one of the major indexes drops 700 points in a day look around and tell people "you'll be fine if you don't panic sell. This literally happened a few weeks ago. I "lost" 9% in a day on news of a possible Trump impeachment, proceeded to not panic, and then watched my funds restore themselves. You can't use people doing the exact opposite of what they're advised to do as an example of the advice not working. > Where was the index fund advice in '98? Where were all the people who had well balanced / well hedged portfolios in '07-'09? I guess it was with all the people that still had green grass on their lawns? The ones that actually followed the advice? > There was an army of day-traders once upon a time not all that long ago that blew all kinds of sunshine up people's asses about investments. They're still there, and they're still blowing, but that's not the advice we're talking about in this thread. We're literally talking about sitting on a passive index for 24 years. > But by all means, keep shilling the passive investment advice... Who are we shilling for? Big Passive Investment? Am I getting commissions off your money? --- By the way, I'm interested to know what you propose I do with, say, an unexpected year-end bonus. Put it in a bank account earning -2% real interest?
- underwater 9y ago
  If you are heavily invested in a single stock, whether it's Pets.com, Bear Stearns, or Tesla, then you aren't aiming for average returns. Index funds are a low effort way to spread risk and are simple to use. The real problem is that most people lack the discipline to avoid panic selling or to avoid chasing bigger wins.
watwut 9y ago
"Anyone that didn't panic sell during the crash has recovered." That is simply not true.

Steeeve 9y ago

> Anyone that didn't panic sell during the crash has recovered. What does 500 shares of Pets.com sell for these days? All the people who had pensions heavily invested in Bear Stearns High-Grade Structured Credit Enhanced Leveraged Fund came out OK after a bit of time? --- Investment carries risk at all levels. The longer you play the market, the more likely it is that you'll get burned at some point. Professional investors can come up with plans to hedge their risk and avoid calamity. Some of those plans might even work. People who go straight to work out of high school are not professional investors. "Panic selling" is not always a choice, and it's not always even possible. And no, not everybody who lost a boatload of money during any particular crash ended up OK because they decided to let their investments coast.

MagnumOpus 9y ago
You are building strawmen. The suggestion was to "invest into the stock market", not to "gamble on the single riskiest stock you can find". If an amateur invests their money into a passive index fund or even a diversified equity fund like, say, Fidelity Magellan, they would have done well over any 20-year span. Nuff said.
- Steeeve 9y ago
  Both of the investments I referenced were solid until they weren't. My adult life has seen 3 major market crashes and a terrible recession. I've watched neighborhoods go into foreclosures on 80% of their homes. I've had friends go unemployed for over a year. When I see people spread investment advice as if there's no downside, I have to shake my head. There's money to be made in the market, but it's not without risk. The Nasdaq Composite lost 78% of its value as it fell from 5046.86 to 1114.11 in the dotcom crash. The S&P 500 declined 57% from its high in the housing crash. The Dow lost more than 5% in a single day at least 5 times in 2008. The next time one of the major indexes drops 700 points in a day look around and tell people "you'll be fine if you don't panic sell. Think about it in 20 year increments. It'll all average out. You're money is all in an index fund, right? Those are totally safe. You didn't want to spend anything during this presidential cycle anyways." Where was the index fund advice in '98? Where were all the people who had well balanced / well hedged portfolios in '07-'09? I'll tell you where they weren't. Every house with brown grass that the banks had foreclosed on and decided not to keep up. There was an army of day-traders once upon a time not all that long ago that blew all kinds of sunshine up people's asses about investments. There's no reason to. People who have the money to can invest if they want and if they do they should learn about the risks and ask the people who are giving them advice how they fared during the crashes. If those advisors don't admit it was hairy and ridiculously stressful, they are lying through their teeth. Index fund advice became widespread after '08. Now Black Rock, State Street, and Vanguard own majority stock in 440 S&P companies. You aren't invested in the S&P500 anymore. You are invested in BR/SS/VG management. Who aren't incentivized towards the interest of any particular firm. What happens as these funds grow? If investors herd to passively managed funds, what's the outcome? Faster cycles. The indexes do more securities lending, which makes them less liquid come crash time. Do investors know that these funds will have liquidity problems if the market goes belly up? A whole shitload of people are going to learn the term "halting redemptions" really quickly. Do investors realize that the growth of passive investment increases anti-competitive behavior? Which isn't good for the economy and sure as shit isn't good for small investors. But by all means, keep shilling the passive investment advice as if you've been doing it for 40 years. Then complain with the rest of the country that the funds should have been regulated more and how people should have known not to give that much power to so few companies in the financial sector.
  - lodi 9y ago
    > Both of the investments I referenced were solid until they weren't. No they weren't, not even close. Investing all your money in one company (whether Pets.com, McDonald's, or any other) is not, and has never been, "solid". Also, the words "leveraged hedge fund" should tip you off that that wasn't a low-risk investment. > When I see people spread investment advice as if there's no downside... Seriously? No true scotsman... err investor... would imply that the stock market is risk-free. Of course there's risk! It's literally the second-most risky/lucrative investment you can make (next to options trading). But the argument is that investing passively in a well-diversified index shifts most of that risk away from total loss--as in your examples--and into more manageable risks, e.g. waiting for the market to recover. > The S&P 500 declined 57% from its high in the housing crash. Sure, and then it grew 232% in five years to restore itself. > You didn't want to spend anything during this presidential cycle anyways. That's right, we're talking specifically about long-term savings; money that you're not planning to use in the next 5, maybe 10 years. If you're buying pets.com stock with next month's rent money, that's on you. Stock market isn't for everyone; buy T-bills if you want a safer investment. And by the way, in the context of this thread, money spent on tuition is also money that you can't spend in this presidential cycle, or the next! The break-even on something like med-school could easily take three presidencies or more. > The Dow lost more than 5% in a single day at least 5 times in 2008. The next time one of the major indexes drops 700 points in a day look around and tell people "you'll be fine if you don't panic sell. This literally happened a few weeks ago. I "lost" 9% in a day on news of a possible Trump impeachment, proceeded to not panic, and then watched my funds restore themselves. You can't use people doing the exact opposite of what they're advised to do as an example of the advice not working. > Where was the index fund advice in '98? Where were all the people who had well balanced / well hedged portfolios in '07-'09? I guess it was with all the people that still had green grass on their lawns? The ones that actually followed the advice? > There was an army of day-traders once upon a time not all that long ago that blew all kinds of sunshine up people's asses about investments. They're still there, and they're still blowing, but that's not the advice we're talking about in this thread. We're literally talking about sitting on a passive index for 24 years. > But by all means, keep shilling the passive investment advice... Who are we shilling for? Big Passive Investment? Am I getting commissions off your money? --- By the way, I'm interested to know what you propose I do with, say, an unexpected year-end bonus. Put it in a bank account earning -2% real interest?
underwater 9y ago
If you are heavily invested in a single stock, whether it's Pets.com, Bear Stearns, or Tesla, then you aren't aiming for average returns. Index funds are a low effort way to spread risk and are simple to use. The real problem is that most people lack the discipline to avoid panic selling or to avoid chasing bigger wins.

watwut 9y ago

"Anyone that didn't panic sell during the crash has recovered." That is simply not true.