4 ms·

Historically speaking, you're very wrong. There's no better place you could've put your money than the s&p.

by _se 7y ago

tempsy 7y ago
I’m saying a positive ROI is not the same thing as compound interest. An asset that rises in value like $SPY is not in of itself an example of compound interest.
- awrence 7y ago
  This feels like a semantics back and forth. Call it compound growth then. It's the same concept. This applies to all yielding assets. You can call it divs / buybacks for stocks and interest for bonds, but it's the same thing / effect.
  - samatman 7y ago
    Not even vaguely. Compounded interest is reliable, even boring. You know exactly what you'll have at any moment in time. Your ten-year index returns are reasonably reliable, historically. But your 2007-2009 returns aren't your 2016-2018 returns, at all. They're different concepts and deserve to be conceptualized differently, especially in the modern era, where interest rates on Treasure are lower than inflation.
tunesmith 7y ago
A few tidbits to balance in: On average, S&P performance over 40 years is very good. However, if you look at every possible 40-year period so far, some are really good and some are lousy. If you instead ask "What performance would I have gotten in 90% of those cases?" the performance is not as high. Performance over 30 years is naturally worse than over 40 years, and so on. Due to volatility, you generally score better (in terms of percentage of x-year periods) if you do 70/30 stocks/bonds rather than 100% in stocks. Meaning, you can leverage it to either aim for the same performance with less volatility, or same volatility with greater return. Finally, people tend to put more money in the market when times are good at stocks are high, and less when times are bad and stocks are low. This has a dragging effect on what performance a person can expect. For example, I keep pretty good records and have a list of every date/amount of each retirement contribution I've made. I'm able to simulate what my current balance would be if I have immediately put each sum into S&P (by using the adjusted close for that period). It's not as good as the reported S&P average over that period.
- BeetleB 7y ago
  > On average, S&P performance over 40 years is very good. However, if you look at every possible 40-year period so far, some are really good and some are lousy. If you instead ask "What performance would I have gotten in 90% of those cases?" the performance is not as high. What is "high" for you? I basically did what you suggest (although stopped at 30 years instead of 40): http://blog.nawaz.org/posts/2015/Dec/pay-down-mortgage-or-invest/ http://blog.nawaz.org/posts/2015/Dec/pay-down-mortgage-or-in... On a 30 year horizon, even the worst 30 years (involving the Great Depression) gained money - equivalent of 4% per year after inflation for a lumped sum investment. For a periodic contribution, it was more like 2%. Still, the average for the last 30 years is about 7%. > Due to volatility, you generally score better (in terms of percentage of x-year periods) if you do 70/30 stocks/bonds rather than 100% in stocks. Meaning, you can leverage it to either aim for the same performance with less volatility, or same volatility with greater return. Can you find me a 30 or 40 year period where 70/30 outperformed the 100/0 case? If you're close to retirement, putting more money in bonds is beneficial due to the reduced volatility. It still has lower returns. > For example, I keep pretty good records and have a list of every date/amount of each retirement contribution I've made. I'm able to simulate what my current balance would be if I have immediately put each sum into S&P (by using the adjusted close for that period). It's not as good as the reported S&P average over that period. How long is that period? As the plots on my page show, you need to be well above 10 years to reduce the effect of volatility. I mean - a 10 year window has been as high as 22% per year and as low as -7%/year (i.e. lost money in the 10 year period). Contrast with a 30 year window: The swing is from 11% to 2% - much more stable. If you're looking at your simulated performance over just a few years, you are essentially looking at noise.

Historically speaking, you're very wrong. There's no better place you could've put your money than the s&p.

by _se 7y ago

Historically speaking, you're very wrong. There's no better place you could've put your money than the s&p.

I’m saying a positive ROI is not the same thing as compound interest. An asset that rises in value like $SPY is not in of itself an example of compound interest.

awrence 7y ago
This feels like a semantics back and forth. Call it compound growth then. It's the same concept. This applies to all yielding assets. You can call it divs / buybacks for stocks and interest for bonds, but it's the same thing / effect.
- samatman 7y ago
  Not even vaguely. Compounded interest is reliable, even boring. You know exactly what you'll have at any moment in time. Your ten-year index returns are reasonably reliable, historically. But your 2007-2009 returns aren't your 2016-2018 returns, at all. They're different concepts and deserve to be conceptualized differently, especially in the modern era, where interest rates on Treasure are lower than inflation.

tunesmith 7y ago

A few tidbits to balance in: On average, S&P performance over 40 years is very good. However, if you look at every possible 40-year period so far, some are really good and some are lousy. If you instead ask "What performance would I have gotten in 90% of those cases?" the performance is not as high. Performance over 30 years is naturally worse than over 40 years, and so on. Due to volatility, you generally score better (in terms of percentage of x-year periods) if you do 70/30 stocks/bonds rather than 100% in stocks. Meaning, you can leverage it to either aim for the same performance with less volatility, or same volatility with greater return. Finally, people tend to put more money in the market when times are good at stocks are high, and less when times are bad and stocks are low. This has a dragging effect on what performance a person can expect. For example, I keep pretty good records and have a list of every date/amount of each retirement contribution I've made. I'm able to simulate what my current balance would be if I have immediately put each sum into S&P (by using the adjusted close for that period). It's not as good as the reported S&P average over that period.

BeetleB 7y ago
> On average, S&P performance over 40 years is very good. However, if you look at every possible 40-year period so far, some are really good and some are lousy. If you instead ask "What performance would I have gotten in 90% of those cases?" the performance is not as high. What is "high" for you? I basically did what you suggest (although stopped at 30 years instead of 40): http://blog.nawaz.org/posts/2015/Dec/pay-down-mortgage-or-invest/ http://blog.nawaz.org/posts/2015/Dec/pay-down-mortgage-or-in... On a 30 year horizon, even the worst 30 years (involving the Great Depression) gained money - equivalent of 4% per year after inflation for a lumped sum investment. For a periodic contribution, it was more like 2%. Still, the average for the last 30 years is about 7%. > Due to volatility, you generally score better (in terms of percentage of x-year periods) if you do 70/30 stocks/bonds rather than 100% in stocks. Meaning, you can leverage it to either aim for the same performance with less volatility, or same volatility with greater return. Can you find me a 30 or 40 year period where 70/30 outperformed the 100/0 case? If you're close to retirement, putting more money in bonds is beneficial due to the reduced volatility. It still has lower returns. > For example, I keep pretty good records and have a list of every date/amount of each retirement contribution I've made. I'm able to simulate what my current balance would be if I have immediately put each sum into S&P (by using the adjusted close for that period). It's not as good as the reported S&P average over that period. How long is that period? As the plots on my page show, you need to be well above 10 years to reduce the effect of volatility. I mean - a 10 year window has been as high as 22% per year and as low as -7%/year (i.e. lost money in the 10 year period). Contrast with a 30 year window: The swing is from 11% to 2% - much more stable. If you're looking at your simulated performance over just a few years, you are essentially looking at noise.