6 ms·

I'm going to add that I did a rudimentary an analysis of the S&P 500 because everyone seems to be throwing their money into passive S&P500 low vehicle investmen

I'm going to add that I did a rudimentary an analysis of the S&P 500 because everyone seems to be throwing their money into passive S&P500 low vehicle investments. I looked at every hold period since inception from 1 year holds / returns up to 40 year hold and returns. Timing is crucial for good returns - depending on when you put in and take out your money the returns can be negative (even in cases where you hold up to 15 years) and in other cases quite good (best cases inflation adjusted annualized returns of 12% over 40 years). I did it because I didn't buy the commentary that you should just put it in S&P 500 and that it will almost guarantee returns.

snikeris 6y ago
> Timing is crucial for good returns - depending on when you put in and take out your money the returns can be negative (even in cases where you hold up to 15 years) This is well captured in this guy's drawdown charts: https://portfoliocharts.com/portfolio/drawdowns/ https://portfoliocharts.com/portfolio/drawdowns/
- boringg 6y ago
  This is slick.
CarelessExpert 6y ago
> depending on when you put in and take out your money the returns can be negative (even in cases where you hold up to 15 years) Sorry, but unless you're talking about truly black swan circumstances like the Great Depression or the 2008 crash, I don't believe for a second that, over a 15 year timespan, holding the S&P will result in negative returns frequently enough that a typical investor has to concern themselves with market timing. You need to prove your work for a statement that strong.
- troydavis 6y ago
  For anyone interested in this topic, https://dqydj.com/sp-500-historical-return-calculator/ https://dqydj.com/sp-500-historical-return-calculator/ is a good place to start. As a starting point, accept the defaults and hit "Calculate Historical Returns." The minimum return and standard deviation are most relevant. (Note that it defaults to adjusting for inflation, but that's really the only metric that makes sense when comparing long periods, particularly those including the 1970s and 1980s, so that's probably what you want.)
- jerf 6y ago
  The New York Times published the same sort of analysis in 2011: 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/... Be sure to carefully read the description of the graph. Every time I link this, someone assumes that the green & red indicates are the yearly returns, but the entire point of this graph is that it is cumulative. If it is red 20-30 years into the line, that means that money put it at the beginning had a negative cumulative return after 20-30 years, not that the 20th or 30th year was negative. Also observe the graph is inflation adjusted. Yes, it's true. The idea that you can just stick your money in the stock market and see 7% returns every year is somewhere between "mistaken" and "a lie". It is not a coincidence that this idea has arisen during a time of loose monetary policy and a stock market that is being inflated by it over the course of a couple of decades. In the 1970s and 1980s, for instance, this would have been considered risible, and indeed, people did not generally value stock equities. (See the chart for why they may have felt that way.) It is not an even remotely accurate model of the stock market to think of it as a 7% return that you can casually compound over time. Anyone who speaks of that model or uses that model doesn't know what they are doing. Your debt certainly compounds over time, but your assets can't be modeled as doing that. A couple of further observations: Part of the reason why the stock market can offer 7-10% gains in a year, when the economy does not offer such gains in general, is precisely that "room" is made for those gains by the years in which it loses big. This is also part of why we have a pension fund crises, because even in the relatively friendly stock market of the past couple of decades, even these so-called professionals would blindly use a high-single-digit return estimate per year, and even in the past few years, that has been an inadequate model. The bailout they're going to need if the stock market actually crashes (popping the "Everything Bubble"?) will be literally unaffordable. (Not paying in sufficiently is also a problem, but that is also itself a consequence of absurdly optimistic models being generally accepted.)
  - boringg 6y ago
    Kind of wish they re-ran the code to bring in the 2010s-2020s! Really appreciate that visual - my code is just from 70s until now .. I should build it as a heat map like this one.
  - 6y ago
- iso1631 6y ago
  Sell in Feb 2009 and you'd have made a loss if you had entered at any point since May 1995 Buy at the peak in Aug 2000 and you'd have been in the red until Feb 2015 Invest in the Nov 1968 peak at 810 and you'd have seen red until Dec 1992 However invest $100 a month in 1985, increase your investment by 2% per year, and you'd have made a 388% profit by now, having invested $69420 (snigger) and have $338956 back. That's excluding any dividends.
- boringg 6y ago
  go look at the investments into the market 98 early 2000s in the market and how they underperformed for about a decade. (look at the NYT visualization you were commenting on). Adjust it for inflation. My point is that investing at the peak of the market will not generate returns unless you unload before the market goes down. Now who knows if the equity markets are going to get clipped (or rather when) ... timing is fickle. Also, selling on good years makes your performance exceptionally good. I guess TL; DR. Either sell in the good years around nowish if you've generated a return as equity markets are frothy or be prepared to hold a long time to generate a return [statement for S&P index not individual stocks] assuming the future follows some of the past patterns (sample size is small though to be fair).
arez 6y ago
the problem is just that you don't know when it's a good or bad timing, that's why you shouldn't bother and just put your money in. If your money is long enough in the market it doesn't matter anymore that much as it averages out. It also sounds that you think 15yrs is a long time, but for ETF you should consider more like 20yrs and up
- boringg 6y ago
  I understand the theory behind it and the uncertainty of timing is an impossible problem to solve. My point is that holding S&P 500 generally gives you a positive return but if you buy during good years/months and end up having to sell in bad years/months you actually can have a negative return up to a about 15 years (if you really eff the timing up) or get marginal returns (1-2% per year). Even over 40 years - you probably wouldn't be supper happy with a 100% return - yes things go positive but your returns are much lower if you time the market poorly (obvious statement). For example buying in 98/99/00 your returns are much worse then buying before or after. Likewise selling in those years gave much higher returns. Stating the obvious - but worth thinking about. Sell when the market is rich, buy when its soft (like blackjack).
tyrust 6y ago
I've run similar calculations in an attempt to convince an acquaintance not to pull out their money when they "had a bad feeling" about something. To me the takeaway isn't that "timing is critical for good returns" but that "you can't time good returns, so don't move all your money at once". You'll be investing over the years of your career and withdrawing over years of your retirement. Historically, it ends up working out.
cocoa19 6y ago
General consensus is to invest using dollar cost averaging so you don't rely on timing. Invest the same amount of money each pay cycle. If stock is expensive, you'll be able to afford less stock, if stock is cheap, you'll afford more stock.
- jusssi 6y ago
  The same principle can be applied for taking your money out. Instead of a single big cash-out, take $X per month.
- tyrust 6y ago
  It's not exact that straight-forward. From Vanguard: > Our research indicates that it's prudent to invest a lump sum immediately. Article: https://investor.vanguard.com/investing/online-trading/invest-lump-sum https://investor.vanguard.com/investing/online-trading/inves... PDF: https://static.twentyoverten.com/5980d16bbfb1c93238ad9c24/rJpQmY8o7/Dollar-Cost-Averaging-Just-Means-Taking-Risk-Later-Vanguard.pdf&ved=2ahUKEwi-3cvykabwAhXhNX0KHeJ3CskQFjAAegQIBhAC&usg=AOvVaw1_IXF2JdrxbnGhqX28B0ce https://static.twentyoverten.com/5980d16bbfb1c93238ad9c24/rJ...
  - deleted 6y ago
    [deleted]
as_i_fall 6y ago
I don't think anyone is claiming that throwing your money into SPY for a year or even 5 will guarantee returns.
- bryanlarsen 6y ago
  But the claim is often made that throwing it in for 10 or 20 years will guarantee returns.
  - as_i_fall 6y ago
    Well obviously nothing is guaranteed, but something like 90% of 20 year windows in the last 100 years would in fact result in positive real returns. 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/... Note that the light red color is actually still indicating a positive real return, this is particularly relevant in the 70s and early 80s when a 2% real return would be a much higher nominal return. Agreed that some people expect returns for time horizons as short as 10 years though, which is clearly a mistake.
    - bryanlarsen 6y ago
      The last 100 years is only a weak predictor of the future.
      - as_i_fall 6y ago
        If you find a stronger one I'll be all ears
    - BeetleB 6y ago
      Interesting: I did my own analysis[1] and did not show a loss for any 20 year period: http://blog.nawaz.org/posts/2015/Dec/pay-down-mortgage-or-invest/ http://blog.nawaz.org/posts/2015/Dec/pay-down-mortgage-or-in... Must be some differences in the data they have vs what I could find. I did include inflation and dividends, but not taxes - wondering if that brought it to the negative.
caturopath 6y ago
The S&P had one 22-year drawdown in its history, the Great Depression. Second place was 4 years. If people planned to contribute once in their life, the risk of buying the top before a long drawdown would be relevant. Most people spend decades of their life buying investments. Even folks with bad luck seldom buy the absolute top -- positions acquired a couple months before are out of the drawdown that much sooner. No backtest of typical investment patterns is going to see any 15-year net losses in the S&P's history.
- kgwgk 6y ago
  > Second place was 4 years. What about mid-2000 to late-2006? And that's in nominal terms, because it underperformed cash from mid-2000 to mid-2013 (and quite longer against bonds).
  - caturopath 6y ago
    Ugh, I looked at the wrong column in https://static.seekingalpha.com/uploads/2020/5/20/saupload_dd.tab_.19may2020_thumb1.png https://static.seekingalpha.com/uploads/2020/5/20/saupload_d... and didn't sanity check the results. Sorry for my sloppiness and misinformation.
SamBam 6y ago
> the returns can be negative (even in cases where you hold up to 15 years) Are you certain? Are you taking into account potential deflation or other factors during that time? There are some analyses that say that even if you bought at the height in 1929, you would actually still make you money back within 10 years. Here is an article from 2009 [1] suggesting that the very longest true downturn of the stock market was 8 years, during the recession of the 1970s. 1. https://www.nytimes.com/2009/04/26/your-money/stocks-and-bonds/26stra.html https://www.nytimes.com/2009/04/26/your-money/stocks-and-bon...
yummypaint 6y ago
This is true, but it's easy to look back at historical data and draw conclusions from perfect information. When actually making an investment decision facing an unknown future, index funds are relatively low risk. This is why people actually buy them. Making the pool of companies smaller will only increase the volatility. I would argue that psychologicaly the S&P offers the least optimistic promise of return for an investment a person would realistically make, since it is supposed to represent the market as a whole. People don't like to make an investment if they believe its quality is below-average, so expectation of average returns is really the minimum.
jsight 6y ago
> Timing is crucial for good returns - depending on when you put in and take out your money the returns can be negative (even in cases where you hold up to 15 years) and in other cases quite good (best cases inflation adjusted annualized returns of 12% over 40 years). Yes, timing is crucial. In your analysis, how much did timing change if you change the "sell date" into a 6 month window?
BeetleB 6y ago
I did the same analysis. There's no 20+ year period where it lost money. http://blog.nawaz.org/posts/2015/Dec/pay-down-mortgage-or-invest/ http://blog.nawaz.org/posts/2015/Dec/pay-down-mortgage-or-in...
programmertote 6y ago
Somewhat related question: where/how did you acquire that data? I have been meaning to run some simulations on the S&P 500 historical daily closing data, but I can't seem to find a place that provides the data covering for the last 40-50 years. Thanks in advance for your answer!
boringg 6y ago
Adding some further comments since there were a lot of questions: I did a portfolio approach in which you invested the same amount each year. I determined the final returns from very outcome (i.e purchase and hold and sell every year combination) of investment over the last 40 years and did both nominal and inflation adjusted dollars.

snikeris 6y ago

> Timing is crucial for good returns - depending on when you put in and take out your money the returns can be negative (even in cases where you hold up to 15 years) This is well captured in this guy's drawdown charts: https://portfoliocharts.com/portfolio/drawdowns/ https://portfoliocharts.com/portfolio/drawdowns/

boringg 6y ago
This is slick.

CarelessExpert 6y ago

> depending on when you put in and take out your money the returns can be negative (even in cases where you hold up to 15 years) Sorry, but unless you're talking about truly black swan circumstances like the Great Depression or the 2008 crash, I don't believe for a second that, over a 15 year timespan, holding the S&P will result in negative returns frequently enough that a typical investor has to concern themselves with market timing. You need to prove your work for a statement that strong.

troydavis 6y ago
For anyone interested in this topic, https://dqydj.com/sp-500-historical-return-calculator/ https://dqydj.com/sp-500-historical-return-calculator/ is a good place to start. As a starting point, accept the defaults and hit "Calculate Historical Returns." The minimum return and standard deviation are most relevant. (Note that it defaults to adjusting for inflation, but that's really the only metric that makes sense when comparing long periods, particularly those including the 1970s and 1980s, so that's probably what you want.)
jerf 6y ago
The New York Times published the same sort of analysis in 2011: 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/... Be sure to carefully read the description of the graph. Every time I link this, someone assumes that the green & red indicates are the yearly returns, but the entire point of this graph is that it is cumulative. If it is red 20-30 years into the line, that means that money put it at the beginning had a negative cumulative return after 20-30 years, not that the 20th or 30th year was negative. Also observe the graph is inflation adjusted. Yes, it's true. The idea that you can just stick your money in the stock market and see 7% returns every year is somewhere between "mistaken" and "a lie". It is not a coincidence that this idea has arisen during a time of loose monetary policy and a stock market that is being inflated by it over the course of a couple of decades. In the 1970s and 1980s, for instance, this would have been considered risible, and indeed, people did not generally value stock equities. (See the chart for why they may have felt that way.) It is not an even remotely accurate model of the stock market to think of it as a 7% return that you can casually compound over time. Anyone who speaks of that model or uses that model doesn't know what they are doing. Your debt certainly compounds over time, but your assets can't be modeled as doing that. A couple of further observations: Part of the reason why the stock market can offer 7-10% gains in a year, when the economy does not offer such gains in general, is precisely that "room" is made for those gains by the years in which it loses big. This is also part of why we have a pension fund crises, because even in the relatively friendly stock market of the past couple of decades, even these so-called professionals would blindly use a high-single-digit return estimate per year, and even in the past few years, that has been an inadequate model. The bailout they're going to need if the stock market actually crashes (popping the "Everything Bubble"?) will be literally unaffordable. (Not paying in sufficiently is also a problem, but that is also itself a consequence of absurdly optimistic models being generally accepted.)
- boringg 6y ago
  Kind of wish they re-ran the code to bring in the 2010s-2020s! Really appreciate that visual - my code is just from 70s until now .. I should build it as a heat map like this one.
- 6y ago
iso1631 6y ago
Sell in Feb 2009 and you'd have made a loss if you had entered at any point since May 1995 Buy at the peak in Aug 2000 and you'd have been in the red until Feb 2015 Invest in the Nov 1968 peak at 810 and you'd have seen red until Dec 1992 However invest $100 a month in 1985, increase your investment by 2% per year, and you'd have made a 388% profit by now, having invested $69420 (snigger) and have $338956 back. That's excluding any dividends.
boringg 6y ago
go look at the investments into the market 98 early 2000s in the market and how they underperformed for about a decade. (look at the NYT visualization you were commenting on). Adjust it for inflation. My point is that investing at the peak of the market will not generate returns unless you unload before the market goes down. Now who knows if the equity markets are going to get clipped (or rather when) ... timing is fickle. Also, selling on good years makes your performance exceptionally good. I guess TL; DR. Either sell in the good years around nowish if you've generated a return as equity markets are frothy or be prepared to hold a long time to generate a return [statement for S&P index not individual stocks] assuming the future follows some of the past patterns (sample size is small though to be fair).

arez 6y ago

the problem is just that you don't know when it's a good or bad timing, that's why you shouldn't bother and just put your money in. If your money is long enough in the market it doesn't matter anymore that much as it averages out. It also sounds that you think 15yrs is a long time, but for ETF you should consider more like 20yrs and up

boringg 6y ago
I understand the theory behind it and the uncertainty of timing is an impossible problem to solve. My point is that holding S&P 500 generally gives you a positive return but if you buy during good years/months and end up having to sell in bad years/months you actually can have a negative return up to a about 15 years (if you really eff the timing up) or get marginal returns (1-2% per year). Even over 40 years - you probably wouldn't be supper happy with a 100% return - yes things go positive but your returns are much lower if you time the market poorly (obvious statement). For example buying in 98/99/00 your returns are much worse then buying before or after. Likewise selling in those years gave much higher returns. Stating the obvious - but worth thinking about. Sell when the market is rich, buy when its soft (like blackjack).

tyrust 6y ago

I've run similar calculations in an attempt to convince an acquaintance not to pull out their money when they "had a bad feeling" about something. To me the takeaway isn't that "timing is critical for good returns" but that "you can't time good returns, so don't move all your money at once". You'll be investing over the years of your career and withdrawing over years of your retirement. Historically, it ends up working out.

cocoa19 6y ago

General consensus is to invest using dollar cost averaging so you don't rely on timing. Invest the same amount of money each pay cycle. If stock is expensive, you'll be able to afford less stock, if stock is cheap, you'll afford more stock.

jusssi 6y ago
The same principle can be applied for taking your money out. Instead of a single big cash-out, take $X per month.
tyrust 6y ago
It's not exact that straight-forward. From Vanguard: > Our research indicates that it's prudent to invest a lump sum immediately. Article: https://investor.vanguard.com/investing/online-trading/invest-lump-sum https://investor.vanguard.com/investing/online-trading/inves... PDF: https://static.twentyoverten.com/5980d16bbfb1c93238ad9c24/rJpQmY8o7/Dollar-Cost-Averaging-Just-Means-Taking-Risk-Later-Vanguard.pdf&ved=2ahUKEwi-3cvykabwAhXhNX0KHeJ3CskQFjAAegQIBhAC&usg=AOvVaw1_IXF2JdrxbnGhqX28B0ce https://static.twentyoverten.com/5980d16bbfb1c93238ad9c24/rJ...
- deleted 6y ago
  [deleted]

as_i_fall 6y ago

I don't think anyone is claiming that throwing your money into SPY for a year or even 5 will guarantee returns.

bryanlarsen 6y ago
But the claim is often made that throwing it in for 10 or 20 years will guarantee returns.
- as_i_fall 6y ago
  Well obviously nothing is guaranteed, but something like 90% of 20 year windows in the last 100 years would in fact result in positive real returns. 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/... Note that the light red color is actually still indicating a positive real return, this is particularly relevant in the 70s and early 80s when a 2% real return would be a much higher nominal return. Agreed that some people expect returns for time horizons as short as 10 years though, which is clearly a mistake.
  - bryanlarsen 6y ago
    The last 100 years is only a weak predictor of the future.
    - as_i_fall 6y ago
      If you find a stronger one I'll be all ears
  - BeetleB 6y ago
    Interesting: I did my own analysis[1] and did not show a loss for any 20 year period: http://blog.nawaz.org/posts/2015/Dec/pay-down-mortgage-or-invest/ http://blog.nawaz.org/posts/2015/Dec/pay-down-mortgage-or-in... Must be some differences in the data they have vs what I could find. I did include inflation and dividends, but not taxes - wondering if that brought it to the negative.

caturopath 6y ago

The S&P had one 22-year drawdown in its history, the Great Depression. Second place was 4 years. If people planned to contribute once in their life, the risk of buying the top before a long drawdown would be relevant. Most people spend decades of their life buying investments. Even folks with bad luck seldom buy the absolute top -- positions acquired a couple months before are out of the drawdown that much sooner. No backtest of typical investment patterns is going to see any 15-year net losses in the S&P's history.

kgwgk 6y ago
> Second place was 4 years. What about mid-2000 to late-2006? And that's in nominal terms, because it underperformed cash from mid-2000 to mid-2013 (and quite longer against bonds).
- caturopath 6y ago
  Ugh, I looked at the wrong column in https://static.seekingalpha.com/uploads/2020/5/20/saupload_dd.tab_.19may2020_thumb1.png https://static.seekingalpha.com/uploads/2020/5/20/saupload_d... and didn't sanity check the results. Sorry for my sloppiness and misinformation.

SamBam 6y ago

> the returns can be negative (even in cases where you hold up to 15 years) Are you certain? Are you taking into account potential deflation or other factors during that time? There are some analyses that say that even if you bought at the height in 1929, you would actually still make you money back within 10 years. Here is an article from 2009 [1] suggesting that the very longest true downturn of the stock market was 8 years, during the recession of the 1970s. 1. https://www.nytimes.com/2009/04/26/your-money/stocks-and-bonds/26stra.html https://www.nytimes.com/2009/04/26/your-money/stocks-and-bon...

yummypaint 6y ago

This is true, but it's easy to look back at historical data and draw conclusions from perfect information. When actually making an investment decision facing an unknown future, index funds are relatively low risk. This is why people actually buy them. Making the pool of companies smaller will only increase the volatility. I would argue that psychologicaly the S&P offers the least optimistic promise of return for an investment a person would realistically make, since it is supposed to represent the market as a whole. People don't like to make an investment if they believe its quality is below-average, so expectation of average returns is really the minimum.

jsight 6y ago

> Timing is crucial for good returns - depending on when you put in and take out your money the returns can be negative (even in cases where you hold up to 15 years) and in other cases quite good (best cases inflation adjusted annualized returns of 12% over 40 years). Yes, timing is crucial. In your analysis, how much did timing change if you change the "sell date" into a 6 month window?

BeetleB 6y ago

I did the same analysis. There's no 20+ year period where it lost money. http://blog.nawaz.org/posts/2015/Dec/pay-down-mortgage-or-invest/ http://blog.nawaz.org/posts/2015/Dec/pay-down-mortgage-or-in...

programmertote 6y ago

Somewhat related question: where/how did you acquire that data? I have been meaning to run some simulations on the S&P 500 historical daily closing data, but I can't seem to find a place that provides the data covering for the last 40-50 years. Thanks in advance for your answer!

boringg 6y ago

Adding some further comments since there were a lot of questions: I did a portfolio approach in which you invested the same amount each year. I determined the final returns from very outcome (i.e purchase and hold and sell every year combination) of investment over the last 40 years and did both nominal and inflation adjusted dollars.