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You need to examine how stocks return though. Because interest rates are so low today the dividend yield of the S&P500 is about 1.28%. Since the late 70's in pa

You need to examine how stocks return though. Because interest rates are so low today the dividend yield of the S&P500 is about 1.28%. Since the late 70's in particular it has been a steady march down as interest rates have declined over that same time. So to your point yes the "return" has been similar in the last 20, 30 years as historical averages but it's coming from asset price inflation rather than income streams. That's an important and notable difference. Investors are willing to bid up the price of stocks to get any kind of return (since the returns of bonds have fallen so much) creating more asset bubbles and volatility. Additionally, what if we can't really take interest rates lower at some point? Yields on the S&P500 will be nearly tiny and asset prices won't be able to climb further as there's nothing left to harvest. I'll grant it's not as simple as I make it out here - companies have employed strategies to buy back stock rather than pay dividends since it's logically a better thing to do in terms of taxes. FWIW, stocks are sort of a bit player in the financial markets. Bonds are king and the main player overall and as their yields have fallen this has been good for businesses in many ways (cheap money to take risks with) but it also means that really risky bonds are not yielding much for the level of risk they are associated with.

bluecalm 5y ago
Dividends don't matter. If anything it makes sense to look at profits or better yet profits before investments in future profitable projects. With that in mind it's still 3-4% at least on average for S&P500 companies.
- nemo44x 5y ago
  Yes profitability is the bigger picture - companies can choose to distribute that as a dividend, stock buyback, or reinvest. My point being that stocks as a form of income (the entire point of an investment) has all but vanished and the yield has been driven down because of interest rate drops. Investors are willing to pay more and more for stocks because of this - where else can you get yield? One only has to look at P/E ratios since 1980 to see this, meaning that companies aren't simply earning more and doing something else with it. Their stock simply costs more as a percentage of their earnings and less of that is being distributed, relying nearly entirely on appreciation alone to hit their 8% average yearly return. And they've been appreciating more quickly than GDP for quite awhile - not every company is growing earnings 8%/year nor can they. > With that in mind it's still 3-4% at least on average for S&P500 companies The current yield is 1.28%, down from 1.58% a year ago. The last time it was 3% was in 2008 (for a few months) and that was only because stock prices fell through the floor driving yields up for a few months. The last time the index yielded at 3% or more consistently was 1991 with yields being around 4% for much of the 1980's. I don't think it's possible to really raise rates at all maybe ever again and I think the evidence of this is the last 40 years. They ebb and flow but they trend down and continue to. If the trend reversed the entire system would collapse at this point with mortgages being destroyed, stocks falling rapidly in price as higher yields are demanded, and anyone holding a bond left with a bag. For this reason I believe we either see rates to continue to fall or stabilize around 0 and pretty much sit there as growth in terms of yield and appreciation more or less stagnate but with assets so inflated they are out of reach of most people while yielding below inflation which is the only driver of "appreciation" but not in real dollars.
  - bluecalm 5y ago
    What do you mean by "index yield"? Average p/e ratio is 35 from what I am googling so that's 3% right there. As there is not much incentives to make profit (better to invest, buy other companies etc.) It should be higher than 3%. If you mean dividend yield then it's a completely meaningless metric for obvious reasons. The only thing dividends matter for is assessing growth potential and how well the company is run (inverse correlation with both). I think it's completely crazy to expect returns of 7-8% as they historically were. My view is that equities were criminally undervalued for decades, they are still undervalued but at least more reasonably priced now. It will take a while. I think it will a better world if you can't just get 7% or 5% or w/e almost risk free return. Once the returns are closer to 0 there will be incentive to deploy capital to create value which will be better for most, especially for the working class.
    - nemo44x 5y ago
      > What do you mean by "index yield"? If you were to hold an S&P500 ETF, the dividend yield you'd receive each year. Yes, the P/E is 35 today but historically it has been 15. It tends to find a correction back to 15 eventually. However, this is the average since the late 1800's and of course things are different today. I think if you look at the last 40 years, P/E has been a bit higher than 15 on average. > I think it's completely crazy to expect returns of 7-8% as they historically were. My view is that equities were criminally undervalued for decades, they are still undervalued but at least more reasonably priced now. It will take a while. I think it will a better world if you can't just get 7% or 5% or w/e almost risk free return. Once the returns are closer to 0 there will be incentive to deploy capital to create value which will be better for most, especially for the working class. That's an interesting way to look at it and I can't say I disagree. It is interesting how the purpose of equities has changed. For many years it was the idea that you wanted to create an income source. But over the last 100 years it has changed to expecting appreciation. I think my main disagreement is I think a world with higher interest rates and therefore lower asset prices is a more stable place. But I see your point of view. But with no returns, why would anyone invest in a company? Why would anyone loan money or buy equity if there were no expectations of a return and yet the risk of bankruptcy still existed? Why would a stock appreciate in value if it would return nothing? I mean, the only reason a stock raises in value is because it is assumed that their profits will eventually be paid out at a percentage of the calculated risk.

bluecalm 5y ago

Dividends don't matter. If anything it makes sense to look at profits or better yet profits before investments in future profitable projects. With that in mind it's still 3-4% at least on average for S&P500 companies.

nemo44x 5y ago
Yes profitability is the bigger picture - companies can choose to distribute that as a dividend, stock buyback, or reinvest. My point being that stocks as a form of income (the entire point of an investment) has all but vanished and the yield has been driven down because of interest rate drops. Investors are willing to pay more and more for stocks because of this - where else can you get yield? One only has to look at P/E ratios since 1980 to see this, meaning that companies aren't simply earning more and doing something else with it. Their stock simply costs more as a percentage of their earnings and less of that is being distributed, relying nearly entirely on appreciation alone to hit their 8% average yearly return. And they've been appreciating more quickly than GDP for quite awhile - not every company is growing earnings 8%/year nor can they. > With that in mind it's still 3-4% at least on average for S&P500 companies The current yield is 1.28%, down from 1.58% a year ago. The last time it was 3% was in 2008 (for a few months) and that was only because stock prices fell through the floor driving yields up for a few months. The last time the index yielded at 3% or more consistently was 1991 with yields being around 4% for much of the 1980's. I don't think it's possible to really raise rates at all maybe ever again and I think the evidence of this is the last 40 years. They ebb and flow but they trend down and continue to. If the trend reversed the entire system would collapse at this point with mortgages being destroyed, stocks falling rapidly in price as higher yields are demanded, and anyone holding a bond left with a bag. For this reason I believe we either see rates to continue to fall or stabilize around 0 and pretty much sit there as growth in terms of yield and appreciation more or less stagnate but with assets so inflated they are out of reach of most people while yielding below inflation which is the only driver of "appreciation" but not in real dollars.
- bluecalm 5y ago
  What do you mean by "index yield"? Average p/e ratio is 35 from what I am googling so that's 3% right there. As there is not much incentives to make profit (better to invest, buy other companies etc.) It should be higher than 3%. If you mean dividend yield then it's a completely meaningless metric for obvious reasons. The only thing dividends matter for is assessing growth potential and how well the company is run (inverse correlation with both). I think it's completely crazy to expect returns of 7-8% as they historically were. My view is that equities were criminally undervalued for decades, they are still undervalued but at least more reasonably priced now. It will take a while. I think it will a better world if you can't just get 7% or 5% or w/e almost risk free return. Once the returns are closer to 0 there will be incentive to deploy capital to create value which will be better for most, especially for the working class.
  - nemo44x 5y ago
    > What do you mean by "index yield"? If you were to hold an S&P500 ETF, the dividend yield you'd receive each year. Yes, the P/E is 35 today but historically it has been 15. It tends to find a correction back to 15 eventually. However, this is the average since the late 1800's and of course things are different today. I think if you look at the last 40 years, P/E has been a bit higher than 15 on average. > I think it's completely crazy to expect returns of 7-8% as they historically were. My view is that equities were criminally undervalued for decades, they are still undervalued but at least more reasonably priced now. It will take a while. I think it will a better world if you can't just get 7% or 5% or w/e almost risk free return. Once the returns are closer to 0 there will be incentive to deploy capital to create value which will be better for most, especially for the working class. That's an interesting way to look at it and I can't say I disagree. It is interesting how the purpose of equities has changed. For many years it was the idea that you wanted to create an income source. But over the last 100 years it has changed to expecting appreciation. I think my main disagreement is I think a world with higher interest rates and therefore lower asset prices is a more stable place. But I see your point of view. But with no returns, why would anyone invest in a company? Why would anyone loan money or buy equity if there were no expectations of a return and yet the risk of bankruptcy still existed? Why would a stock appreciate in value if it would return nothing? I mean, the only reason a stock raises in value is because it is assumed that their profits will eventually be paid out at a percentage of the calculated risk.