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> 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 talki

> 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 5y 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 5y 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 5y 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.
- CarelessExpert 5y ago
  Great visual! So I'll just note a few things: 1) You can clearly see the Great Depression and 2008 in here, so I'm just going to ignore those. 2) The other really nasty period for market returns was during the 70s oil crisis and subsequent high inflation period. It also notably marks areas "slightly above inflation" as red, which are not periods where loses would occur (though, yes, the gains would be basically flat). This strikes me as an odd choice and a misleading one that makes the historical analysis look worse than it actually is. Yet despite that, the majority of that chart shows returns moderately above inflation, sitting in at around the 4% safe withdrawal rate. I personally don't view this as justifying the claim that individual investors need to worry about market timing. If anything it reinforces my view that they shouldn't because no one could apriori predict the kinds of events that led to the red areas of that chart.
  - deleted 5y ago
    [deleted]
  - jerf 5y ago
    I will also agree that if you just erase all the risk from the market due to the downturns, that the market becomes a great investment. But what's the relevance of that? When the next bubble pops, whether it be in two weeks, two years, or a decade, you and your investments are going to experience it. Some of those red splotches go on for twenty years. As for why doing "just barely better than inflation" is marked as red, the chart accounts for inflation, but it doesn't account for a time value of money. Putting $1 dollar in the market to get $1.04 back out 30 years later is not a positive investement. "Yet despite that, the majority of that chart shows returns moderately above inflation, sitting in at around the 4% safe withdrawal rate." Which is why it is generally not a terrible idea to invest in the stock market. But this is basically a goal-post move relative to the "common wisdom", which presents it as a done-deal that the stock market is always a good investment that produces a ~7% return every year. It won't matter to you that it tends to generally produce a relatively decent return over 50 years if you are currently, unbeknownst to you, at the beginning of one of those big red areas that may stretch down for decades. Look at the stock market as it stands today. I will not tell you 100% that we are in such an area; internet commentators have predicted one million of the past 3 recessions. But I will tell you that it's an awfully plausible story.
iso1631 5y 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 5y 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).

troydavis 5y 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 5y 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 5y 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.
CarelessExpert 5y ago
Great visual! So I'll just note a few things: 1) You can clearly see the Great Depression and 2008 in here, so I'm just going to ignore those. 2) The other really nasty period for market returns was during the 70s oil crisis and subsequent high inflation period. It also notably marks areas "slightly above inflation" as red, which are not periods where loses would occur (though, yes, the gains would be basically flat). This strikes me as an odd choice and a misleading one that makes the historical analysis look worse than it actually is. Yet despite that, the majority of that chart shows returns moderately above inflation, sitting in at around the 4% safe withdrawal rate. I personally don't view this as justifying the claim that individual investors need to worry about market timing. If anything it reinforces my view that they shouldn't because no one could apriori predict the kinds of events that led to the red areas of that chart.
- deleted 5y ago
  [deleted]
- jerf 5y ago
  I will also agree that if you just erase all the risk from the market due to the downturns, that the market becomes a great investment. But what's the relevance of that? When the next bubble pops, whether it be in two weeks, two years, or a decade, you and your investments are going to experience it. Some of those red splotches go on for twenty years. As for why doing "just barely better than inflation" is marked as red, the chart accounts for inflation, but it doesn't account for a time value of money. Putting $1 dollar in the market to get $1.04 back out 30 years later is not a positive investement. "Yet despite that, the majority of that chart shows returns moderately above inflation, sitting in at around the 4% safe withdrawal rate." Which is why it is generally not a terrible idea to invest in the stock market. But this is basically a goal-post move relative to the "common wisdom", which presents it as a done-deal that the stock market is always a good investment that produces a ~7% return every year. It won't matter to you that it tends to generally produce a relatively decent return over 50 years if you are currently, unbeknownst to you, at the beginning of one of those big red areas that may stretch down for decades. Look at the stock market as it stands today. I will not tell you 100% that we are in such an area; internet commentators have predicted one million of the past 3 recessions. But I will tell you that it's an awfully plausible story.

iso1631 5y 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 5y 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).