4 ms·

Your example is contrived. Assets don't have to go up in value. You could also end up holding the bag in a place like Detroit. You may not end up being able to

Your example is contrived. Assets don't have to go up in value. You could also end up holding the bag in a place like Detroit. You may not end up being able to rent out your second property at a profit. You may end up with a deadbeat tenant, unforeseen expenses, or simply falling rents. These decisions involve risk and they have accordingly, an associated reward. Claiming that there's a "natural law of wealth" doesn't seem as obvious as you're making it out to be.

Pfhreak 6y ago
My example is not contrived, it represents an understanding of the market over the long term. Are there bubbles? Yes. Are there dips? Yes. You are making the inverse mistake of someone who looks at a large jackpot win in Vegas and thinks it's a good investment, when in reality the expected value of a bet is negative. The rate of return on capital has held relatively steady at ~4% for hundreds of years. Stop thinking about individual winners and losers, and look at the broader picture. If you have sufficient capital, you can expect to return capital + n% over time, where n is approximately 4%.
- throwawaysea 6y ago
  No it hasn't remained "steady". You're quoting an average and claiming it is steady but there are periods where your savings would have not seen that growth and even seen negative return. Example analysis: http://archive.nytimes.com/www.nytimes.com/interactive/2011/01/02/business/20110102-metrics-graphic.html http://archive.nytimes.com/www.nytimes.com/interactive/2011/... I'm also not sure what you mean by "sufficient capital". You can by shares one at a time. You don't have to be wealthy to have access to growth in assets.
  - Pfhreak 6y ago
    > You don't have to be wealthy to have access to growth in assets You have to be wealthy to see an appreciable growth in assets. Both the absolute and percentage amounts matter. Yes, anyone can get a 3% return on their investments over time, but that doesn't really matter when you can only invest $1. Living has a certain minimum set of fixed costs, those with sufficient capital can pay for those fixed costs through the growth of their capital and still see a net increase in wealth . Someone making $30k a year in wages will never achieve that, even if they see some growth in assets. > You're quoting an average and claiming it is steady but there are periods where your savings would have not seen that growth and even seen negative return. You are making a pedantic semantic argument. I acknowledged the presence of dips and bubbles. But on "average" you will see a return on capital, especially a diversified market. That analysis only looked at the S&P 500, which is a tiny share of the economy and not at all representative of the growth of capital over time. What about housing, bonds, precious metals, commodities, short positions, international funds, etc. Move up one level of abstraction and look at the forest, not the trees.
    - chordalkeyboard 6y ago
      > You have to be wealthy to see an appreciable growth in assets. Both the absolute and percentage amounts matter. Yes, anyone can get a 3% return on their investments over time, but that doesn't really matter when you can only invest $1. This is an excellent example of how low interest rates prevent anyone but the wealthy from making money on investments.
gzer0 6y ago
https://www.federalreserve.gov/monetarypolicy/bst_recenttrends.htm https://www.federalreserve.gov/monetarypolicy/bst_recenttren... > "These decisions involve risk" The Federal Reserve increased its balance sheet by about 6 trillion USD since March 2020. There is no risk when you have the US Gov't backing you! Edit: https://www.cnbc.com/2020/06/15/the-fed-says-it-is-going-to-start-buying-individual-corporate-bonds.html https://www.cnbc.com/2020/06/15/the-fed-says-it-is-going-to-... Federal Reserve literally backing individual corporations at this point. Where's the risk?

Pfhreak 6y ago

My example is not contrived, it represents an understanding of the market over the long term. Are there bubbles? Yes. Are there dips? Yes. You are making the inverse mistake of someone who looks at a large jackpot win in Vegas and thinks it's a good investment, when in reality the expected value of a bet is negative. The rate of return on capital has held relatively steady at ~4% for hundreds of years. Stop thinking about individual winners and losers, and look at the broader picture. If you have sufficient capital, you can expect to return capital + n% over time, where n is approximately 4%.

throwawaysea 6y ago
No it hasn't remained "steady". You're quoting an average and claiming it is steady but there are periods where your savings would have not seen that growth and even seen negative return. Example analysis: http://archive.nytimes.com/www.nytimes.com/interactive/2011/01/02/business/20110102-metrics-graphic.html http://archive.nytimes.com/www.nytimes.com/interactive/2011/... I'm also not sure what you mean by "sufficient capital". You can by shares one at a time. You don't have to be wealthy to have access to growth in assets.
- Pfhreak 6y ago
  > You don't have to be wealthy to have access to growth in assets You have to be wealthy to see an appreciable growth in assets. Both the absolute and percentage amounts matter. Yes, anyone can get a 3% return on their investments over time, but that doesn't really matter when you can only invest $1. Living has a certain minimum set of fixed costs, those with sufficient capital can pay for those fixed costs through the growth of their capital and still see a net increase in wealth . Someone making $30k a year in wages will never achieve that, even if they see some growth in assets. > You're quoting an average and claiming it is steady but there are periods where your savings would have not seen that growth and even seen negative return. You are making a pedantic semantic argument. I acknowledged the presence of dips and bubbles. But on "average" you will see a return on capital, especially a diversified market. That analysis only looked at the S&P 500, which is a tiny share of the economy and not at all representative of the growth of capital over time. What about housing, bonds, precious metals, commodities, short positions, international funds, etc. Move up one level of abstraction and look at the forest, not the trees.
  - chordalkeyboard 6y ago
    > You have to be wealthy to see an appreciable growth in assets. Both the absolute and percentage amounts matter. Yes, anyone can get a 3% return on their investments over time, but that doesn't really matter when you can only invest $1. This is an excellent example of how low interest rates prevent anyone but the wealthy from making money on investments.

gzer0 6y ago

https://www.federalreserve.gov/monetarypolicy/bst_recenttrends.htm https://www.federalreserve.gov/monetarypolicy/bst_recenttren... > "These decisions involve risk" The Federal Reserve increased its balance sheet by about 6 trillion USD since March 2020. There is no risk when you have the US Gov't backing you! Edit: https://www.cnbc.com/2020/06/15/the-fed-says-it-is-going-to-start-buying-individual-corporate-bonds.html https://www.cnbc.com/2020/06/15/the-fed-says-it-is-going-to-... Federal Reserve literally backing individual corporations at this point. Where's the risk?