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U.S. stock market returns – a history from the 1870s to 2022

464 points by getToTheChopin 4y ago

pcurve 4y ago
Negative annualized return for the 10 year period from 2000 to 2009 is actually quite frightening. "As always, Warren Buffet put it best: “the stock market is a device for transferring money from the impatient to the patient”."
- SketchySeaBeast 4y ago
  One might paraphrase that as "those who can afford to wait".
- paulpauper 4y ago
  It helps too that he lived so long an has no use for the money he has invested
  - radiator 4y ago
    Why? He has children, does he not?
    - paulpauper 4y ago
      he has billions but never spent more than a middle class lifestyle. Saving money matters a lot when we're talking compounding over decades.
      - atombender 4y ago
        Middle class? He owns a private jet and wears custom-designed suits. He appears to live moral frugally than most billionaires, but he hardly has a middle class lifestyle.
    - therealcamino 4y ago
      He famously has said he will donate most of his money rather than leave it to his children. https://givingpledge.org/pledger?pledgerId=177 https://givingpledge.org/pledger?pledgerId=177 He's not leaving them zero or anything, and three of the foundations he's funding are run by his three children, so they benefit from his wealth. But they won't receive most of it.
- layer8 4y ago
  That’s only for the money you put in the stock market in 2000 though. Usually you continually put new money into stocks, which somewhat flattens out the risk. Nevertheless, you arguably shouldn’t invest unless you’re prepared to hold for 10-15 years.
getToTheChopin 4y ago
This is an analysis of U.S. stock market returns over the past 150 years. A few insights: The average return of the U.S. stock market has been 8.4% per year over the past 151 years (1871 to 2022); this is the "real total return" reflecting dividends and inflation While the U.S. stock market has trended upwards over time, the market has declined in 31% of all years on record (47 years out of 151 years in total); for example: in 2022, the U.S. stock market dropped by 23.3% The range of returns across 1-year periods has varied significantly (from negative 37.0% to +53.2%). However, the annualized returns across 20-year periods have a much tighter range (from +0.5% to +13.2%) In other words, the stock market has never declined over any 20-year time period! Sources: Professor Robert Shiller and Yahoo Finance; note: the “U.S. stock market” refers to the S&P Composite index from 1871 to 1957, and the S&P 500 index from 1957 until today
- retube 4y ago
  > The range of returns across 1-year periods has varied significantly (from negative 37.0% to +53.2%). However, the annualized returns across 20-year periods have a much tighter range (from +0.5% to +13.2%) You'd expect something like this. For a normally distributed iid, the annualised volatility of returns over n years scales as sigma / root(n). So if your one year vol was 10%, the annualised vol over a 20 year period would be 10%/sqrt(20) = 2.23%.
  - xapata 4y ago
    Are they normally distributed?
    - pclmulqdq 4y ago
      Almost, but the distribution has slightly fat tails.
      - ttymck 4y ago
        Is it correct to say that makes it (slightly) more like a uniform distribution, if viewed as a spectrum between one-point distribution and uniform?
cs702 4y ago
Make sure also to read Warren Buffett's take, written way back in 1999: https://fortune.com/1999/11/22/warren-buffett-on-stock-market/ https://fortune.com/1999/11/22/warren-buffett-on-stock-marke... [a] For me, the most shocking passage of his piece is this one: > ...from the end of 1964 through 1981. Here’s what took place in that interval: DOW JONES INDUSTRIAL AVERAGE Dec. 31, 1964: 874.12 Dec. 31, 1981: 875.00 Now I’m known as a long-term investor and a patient guy, but that is not my idea of a big move. And here’s a major and very opposite fact: During that same 17 years, the GDP of the U.S.–that is, the business being done in this country–almost quintupled, rising by 370%. Or, if we look at another measure, the sales of the FORTUNE 500 (a changing mix of companies, of course) more than sextupled. And yet the Dow went exactly nowhere. -- [a] https://archive.ph/ZbKZK https://archive.ph/ZbKZK
- getToTheChopin 4y ago
  Great call-out. Here's a non-paywall version to that article: https://www.berkshirehathaway.com/1999ar/FortuneMagazine.pdf https://www.berkshirehathaway.com/1999ar/FortuneMagazine.pdf Interesting to note that if you'd bought and held the S&P500 index for the 20-year period of 1998 to 2018, you would have invested through the dotcom bubble and the great recession -- but still ended with an average real total return of 3.3% per year over that timeframe (adjusted for dividends and inflation)! Edit: typo
  - roflyear 4y ago
    I never thought this was being too honest, as no one just buys the SPY once and forgets about it. Most people invest at some interval (through their 401k, IRA, or whatever) and it is much better to run some kind of test that mimics this to some degree. If you bought the SPY once a year, once a month, once a XXX from 1998 to 2018, what are your returns looking like?
    - DMell 4y ago
      These backtests used to be fun when I had access to a Bloomberg terminal. But, yes.. this discussion shows the importance of dollar cost averaging.
danhak 4y ago
Of course a country’s stock market will perform well as that country ascends to become the world’s dominant superpower. The question is whether the power and influence of the U.S. will grow similarly over the next 150 years as it has over the last 150. To invest mechanically without thinking about what’s actually happening in the world is cargo cult behavior.
- dionidium 4y ago
  Rumors of our impending collapse have been, let's say, exaggerated. I wouldn't bet against the United States over the next 30-50 years, at least.
- gumby 4y ago
  Who cares about returns over the next 150 years? Even half that is excessive. Someone investing at age 18 might care about the subsequent 50 years. It's going to be a long time before some other country takes over the "reserve currency/investment market of last resort" position the US currently has. No other market is even close to providing the deep liquidity and rule of law the US market has over a wide variety of instruments. Sure, someone will eventually take over that role, but there are no candidates today. And, to your point: it was clear by the late 19th century that the US dollar would displace Sterling, but it took another half a century for that to happen. On the scale of current human lifespan, you can assume it won't happen at all.
  - ganonm 4y ago
    Keep in mind that the present value depends somewhat on the discounted future earnings, which by definition extends to the end of time. That being said, the associated time discounting heavily reduces the impact of earnings envisaged say 100 years from now (a 5% discount rate would mean ~13k USD in 100 years is worth about 100 USD now, and that's probably generous given historic market returns). So, the US doing extremely well 100 years from now vs. the US doing very badly 100 years from now could have a non-trivial impact on the perceived value of US assets. I suspect that the large uncertainty about what the world will look like in 100 years means there is just some sort of seldom changing value baked into assets to account for this, but it nonetheless exists, and could change if there was some huge geopolitical shift. And before you mention anyone on earth would be dead in 150 years, yes that's true, however you can always sell it to someone later on who will be alive in 150 years (or sell it to someone who can later sell it to someone etc. etc.).
INeedMoreRam 4y ago
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fedeb95 4y ago
This is bullshit: past returns aren't indicative of future returns. You can't predict the next catastrophe. "Zooming out" is the perfect way to loose money, even better than CAPM or similar stupid things. Edit: Since I'm being downvoted, go read: "The misbehaviour of markets" by Mandelbrot or "The black swan" by Taleb, or just reflect on what "zooming " really is: averaging to keep out outliers. Edit 2: to put it in less salty terms: yes, now it's down 23% from the previous year, so probably it will go up and you will make a profit, as long as US economy doesn't collapse. But you don't know the probability of such an event, since the distribution of returns in markets is unknown (we're not yet at the limit at which the central limit theorem holds). Not knowing that probability, you may die before you see your return. Or, as said, US economy may collapse, your bank or broker will, etc. Meaningless risks? Perhaps in a world of gaussian distributions, not our.
- hartator 4y ago
  I think you have to see it more from "best alternative" mindset. This shows that long term (20 years and plus) assets are best held in low cost stock index funds. Over cash (inflation), bonds, savings accounts, or other assets. It's the least bad option. And you are not suggesting something else. Hence I guess the downvotes. Of course, markets can be irrational forever or tomorrow we could have a nuclear world war or aliens annex us or a meteor can hit us. This is life 101 though. This is not a deep insight.
  - fedeb95 4y ago
    Not suggesting something else isn't an argument. Long term from now you don't know anything, you know long term up to now. The risk of a market crash isn't the same as of a meteor hitting earth, since tails of the probability distribution (as can be estimated, so not cast in stone) are fat.
- verdverm 4y ago
  If the US economy collapses (to black swan catastrophe levels), you are going to have a much different set of problems and markets will stop running all together, the world will collapse. We do know that the probability of a collapse is so small that it is not worth worrying about for investment strategy. Better to worry about the things that might lead to such collapses and strategies to mitigate those
boatsie 4y ago
The argument that the US stock market always goes up over relatively long periods of time seems somewhat flawed to me. If it were true that it was always best to invest in US stocks, everyone’s (longish term) money would flow to that asset class, thus undervaluing something else in return. So it just seems that it can’t be a dominant strategy or else everyone would be doing it. Wouldn’t that leave assets like bonds, real estate, foreign stocks, etc undervalued?
- 1270018080 4y ago
  Everything else goes up over relatively long periods of time too.
- danielmarkbruce 4y ago
  It isn't a zero sum game. The underlying businesses have generated returns on the capital deployed. It can continue to go up forever.
  - HDThoreaun 4y ago
    There is a limited amount of energy we can harness on this planet. Seems extremely difficult to believe it can continue to grow exponentially forever.
    - theandrewbailey 4y ago
      You're moving the goalposts. Capital is not energy.
- paulpauper 4y ago
  Stocks also have much more risk compared to bonds , so more risk compensated by higher returns .
- sokoloff 4y ago
  I think you’re conflating “consistently beats inflation” with “always best investment”. That US stock market real total returns are positive doesn’t say anything about whether all long-term money will flow into it.
rr888 4y ago
Credit Suisse does this every year in the Credit Suisse Global Investment Returns Yearbook. https://www.credit-suisse.com/about-us/en/reports-research/csri.html https://www.credit-suisse.com/about-us/en/reports-research/c... https://www.credit-suisse.com/media/assets/corporate/docs/about-us/research/publications/credit-suisse-global-investment-returns-yearbook-2022-summary-edition.pdf https://www.credit-suisse.com/media/assets/corporate/docs/ab...
julienchastang 4y ago
How can we have infinite, exponential economic growth on a finite planet?
- mikeg8 4y ago
  Growth isn’t solely tied to use of finite resources. Services also count. Two people can exchange a service, say a massage, which extracts zero finite resources, and at the same time, creates economic output. edited typo
  - disqard 4y ago
    I've wondered about that, but it doesn't seem to add up. Maybe you can help me find the flaw in my reasoning (below): There's (at minimum) Time being exchanged. If A gives B a massage, A and B are investing that Time in this transaction (also, A is investing a space, a massage table, electricity for the physical space, etc.). All of these things are finite, and devoted to this service. If the service were not provided, these finite resources would not need to be locked up / extracted / used. To say that the providing of this service happened in a vacuum of "extracts zero finite resources" seems a bit disingenuous.
    - mikeg8 4y ago
      Thanks for engaging, it's beneficial for me to also think through this reasoning. I'm sure there are flaws in my understanding/example as well, but here is how I would respond: I think we are possibly using "finite" too loosely. A googled definition of "finite resource" is, "A resource that is concentrated or formed at a rate very much slower than its rate of consumption and so, for all practical purposes, is non-renewable." I do not believe space would be considered finite as it cannot really be "consumed." occupying a space does not deplete the resource of the space itself. Space on earth is more finite than "space", but still, there are many types of spaces for a massage to take pace: masseuses residence, the client's home, a park or yard, etc. In the economic sense, space doesn't seem finite while it may be in the Physics sense. A massage table doesn't seem finite either. If its made from wood, leather/cotton, those would be regeneratable resources and tables made with metal or plastics probably does not meet the definition of finite as a table is reusable and has a very very low rate of consumption (replaceability in this sense). Finally the most controversial: electricity! hard to argue against this without some squirming but 1) if the massage is rendered in a space with good natural lighting or outdoors, electricity is not mandatory 2) humans may find a way to make this resource much less "finite" in the future. Using the massage example was not a full-proof attempt on my part, but I can imagine others examples (vocal lessons, tutoring, coaching, selling flowers/eggs from a farm stand etc) that can be done without the "finite" resources we are discussing. My main point was that not all economic output is tied to the depletion of a finite resource.
compumike 4y ago
I think a useful analogy for engineers is that companies are machines, a black box that takes some amount of resource as inputs, and turn it into some outputs. If we collapse the vector of those inputs (such as labor, materials, capital) and outputs (products, services) to a single unit such as "dollars" by which we measure those things, then any sustainable (i.e. profitable) business creates more output than input. Personally, I like owning companies, because I like owning black boxes that take money in and produce more money out. :) I do think the long-termist view, which this page promotes, raises several questions: Do you believe that companies will, on average, continue being profitable in the long term? Or do you believe that in the long term, profit margins drop to zero? If capital is abundant, can companies remain profitable without there being a positive return on capital? (I.e. do those profits flow to entities other than shareholders?) Does a "steady state economy" exist? https://en.wikipedia.org/wiki/Steady-state_economy https://en.wikipedia.org/wiki/Steady-state_economy And if so, are steady-state corporate profits zero? Is there a "tendency of the rate of profit to fall" https://en.wikipedia.org/wiki/Tendency_of_the_rate_of_profit_to_fall https://en.wikipedia.org/wiki/Tendency_of_the_rate_of_profit... or is this in some degree compartmentalized with the turnover of industry over time? I do appreciate the graphs on this page, especially the rolling 5/10/20 year ones. When I get some free time, I may adapt that concept for my side project https://totalrealreturns.com/ https://totalrealreturns.com/ which lets you graph the inflation-adjusted, dividend-reinvested returns of any publicly traded stock, ETF, or mutual fund.
- getToTheChopin 4y ago
  You're raising very valid questions. It seems to me that we'd need to have continued breakthroughs in science, technology, medicine, etc. in order to drive sustainable increases in economic growth. Forecasters have predicted the end of innovation at many points, but humans do seem to have a knack of finding something new and valuable.
- kridsdale1 4y ago
  I don’t think we need to worry about steady state economics as long as we are on Earth. Ultimately the whole economy is a proxy for measuring the flows of transformations of useless material and energy in to useful ones. The sun shines every day. That makes crops, which drive labor. Labor writes software, profits go up. The true input is the hydrogen cloud around the sun.
captainmuon 4y ago
It's my understanding that the return on investment has been slowly and constantly going down since at least the 70s, such that it is getting harder and harder to find good investments. That is made more problematic by low interest rates (can't just "bring it to the bank") and high inflation (can't "put it into a sock"). This is the cause of a lot of ailments. Money rushing into real estate, investors requiring a certain ROI, thus neccessarily raising housing prices. Something similar happens in the health sector. How do I square that with this plot that seems to imply constant (although not stable) high returns for over a century? Are the stocks picked not representative (probably not) or not weighted properly? What does "adjusted for reinvested dividends" mean? (I could imagine in times of high inflation and low ROI, companies would want to get rid of cash and pay dividends, rather than investing it themselves for example.)
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- getToTheChopin 4y ago
  This data is based on the returns of the S&P 500 index, which is made up of the 500 largest publicly traded companies in the US: https://en.wikipedia.org/wiki/S%26P_500 https://en.wikipedia.org/wiki/S%26P_500 Adjusting for reinvested dividends refers to an assumption that the cash dividends paid out by a company are re-invested to buy more shares of the stock. The concept being that a company can pay out a cash dividend or use that money to invest / grow their business. Therefore, to calculate a "total return" we need to factor in the price increases of a stock + the dividends that were paid by the company.
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- cheriot 4y ago
  > the return on investment has been slowly and constantly going down since at least the 70s Curious if you have a source for that? > What does "adjusted for reinvested dividends" mean? Dividends are payed out in cash and this means the analysis assumes they're used to buy more shares. There's an argument that the American economy in the 20th century is itself a selection bias. It's the most successful economic period in history. Other countries in the same period or the world economy in other periods do not have such spectacular returns.
keewee7 4y ago
As long as I have been browsing the English-language Internet the overall mood among Americans has been that the S&P500 and US dollar hegemony will collapse in a month. Why is that? I'm European but the US doesn't seem too different from most of Europe in terms of stability and the risk of unrest.
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- EVa5I7bHFq9mnYK 4y ago
  On the internet, you never know who are those "Americans". Keywords such as "US dollar hegemony", "petrodollars" and "Yellowstone volcano explosion" are strong indicators of a certain country's troll operation.
lvl102 4y ago
Would be wise to look at stock market side by side with bond market.
morninglight 4y ago
A Fourier transform on the data is left to the reader. It reveals soooo much more.
- getToTheChopin 4y ago
  Any quick insights to share?
- fallingfrog 4y ago
  Don't keep us hanging!
mnky9800n 4y ago
This justifies historical investment strategies like the very simple buy and hold forever (only blue chips and salsa please) or something marginally more sophisticated like dogs of the dow. The real question is whether growth will continue, or at least during our life times, be kept afloat by unfair practices by the wealthy.
concordDance 4y ago
This is actually horrifying if you think about it for a minute. Given GDP is growing at a slower rate than this, this means that the rich will genuinely just get richer and get a larger slice of the pie while the poor get squeezed. Land/house prices will increase to the maximum the market can bear and as that market will be full of money from those inheriting from their parent's patient investment... we'll end up in a society where your quality of life depends on the wealth of your ancestors.
- JumpCrisscross 4y ago
  > GDP is growing at a slower rate than this Over what interval are you observing this?
  - fallingfrog 4y ago
    https://www.statista.com/statistics/996758/rea-gdp-growth-united-states-1930-2019/ https://www.statista.com/statistics/996758/rea-gdp-growth-un...
- nazgulnarsil 4y ago
  enerational wealth diffuses in 3 generations iirc
- fallingfrog 4y ago
  That's the basic premise behind Piketty's book "Capitalism in the 21st Century". From wikipedia: "The book's central thesis is that when the rate of return on capital (r) is greater than the rate of economic growth (g) over the long term, the result is concentration of wealth, and this unequal distribution of wealth causes social and economic instability. Piketty proposes a global system of progressive wealth taxes to help reduce inequality and avoid the vast majority of wealth coming under the control of a tiny minority."
StillBored 4y ago
So at ~7% it takes 10 years to double your money. So that gives one about 4 doublings in ones working career. So, a bad ten year stretch like 98-08 which provided basically 0% over the decade makes a huge difference in ones ability to retire based solely on 401K/etc style returns and should be a strong argument in favor of defined benefit plans that basically pool the risk over a much longer horizon vs going it alone. I would have expected someone to create a retirement insurance pool type thing that returns something close to the long term average s&p returns. But if you go looking for such a thing, the returns are closer to 1/2 the s&p. Its really the kind of thing the government should backstop but... "socialism" even if the math works out. Which really pisses me off because its apparently ok to "socalize" the poor mgmt at $BIGCORP that gets a handout once a decade or so at the current rate after spending billions on stock by backs but not socialize individual retirement risk in a meaningful way.
- getToTheChopin 4y ago
  > I would have expected someone to create a retirement insurance pool type thing that returns something close to the long term average s&p returns This sounds like you're describing a defined benefit pension plan, or an government old age pension plan like Social Security (in the US) / Canada Pension Plan (in, well, Canada). As usual, higher risk begets higher reward. If you don't want to face the prospects of volatile returns, you'll likely need to accept a lower long-term average return in exchange for the predictability.
  - StillBored 4y ago
    Traditional US pension plans are all but dead except for a small number of people basically grandfathered into systems. Social security doesn't have a way to "buy up" and invest more to get it to say match ones yearly income. So really every individual investor is on their own until they get to the point where they can sell the risk and buy an annuity (although those tend to be terrible too largely I guess because they want to make $$$$ and other reasons). So, in the US outside of Social security, which isn't a retirement plan, there isn't any option other than to hope you don't have to retire during a downturn, or that you have to go live in a box for a few years to avoid burning all your capital when its value temporary falls for a couple years. Because there isn't any way to recover except to go work at walmart as a door greeter. There have been a number of articles about this over the past decade or two, which boil down to, in the US you can do everything "right" but whether you can actually retire comes down to a bunch of lucky decisions and market timing. So basically its random, with some probably of "success" of landing into a bucket that actually allows you to retire even at 65 which is well into the "everyone is dying off" part of the morality curve. Work till you die is the official plan, but then people might start reconsidering their life choices when there isn't this "you will retire happy" carrot at the end.
jgeada 4y ago
Note that there are 20 year periods where the net gain is close to 0. People starting their economically productive life during one of those intervals will not see any economic gains from investing in the stock market, and to the extent that the market echoes the economy their economic situation will likewise be stagnant. And worse, there will be all the people from the lucky intervals extorting these unluckly people to pick themselves up by their bootstraps. People born in the lucky periods almost always describe their results as due to hard work, never as due to luck. And unlucky timing is almost always attributed to personal failures, not the economic situation.
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- throwthere 4y ago
  Bogus. You’re assuming they invested all their dollars at the year 0 (peak) price an and sold everything at the 20 year trough. Of course that’s impossible, they invested over their entire careers which included intervals of much lower prices. So much should be obvious by just looking at the sp500 graph of performance over time. There’s no period where dollar cost averaging over twenty years gave a result like you’re saying.
DwnVoteHoneyPot 4y ago
All that long-term data and presentation is lovely and all, but I disagree with the conclusion of "buying and holding has been a simple and straightforward way to build wealth". Saying investing $1,000 in 1871 would be $22M now doesn't help me. Saying $1,000 in 1969 is now $23K doesn't help me - I wasn't alive then. It's not practical. I didn't have $1,000 of savings until my late 20s. After paying for bachelors and masters, I had to borrow $500 from friend to eat and live until next pay check. Then car, house, furniture. And if that $1,000 I invested in late 20s turns into $2,260 in 20 years - whoop-dee-doo, who cares. Conclusion should be "buying and holding has been a simple and straightforward way to store wealth". But not going to build wealth unless I'm active - building resume, building business. In addition, I might as well take that $1,000 and swing for the fences and turn it into $10,000 or more looking for the next AAPL, GOOG etc. like venture capital.
- anon23anon 4y ago
  I obviously can see your logic but I still think it's your best bet. I also think it's important to point out there's an order of importance. If you have low or no income you're first priority needs to be getting a higher paying job and or up skilling to enable you to get a higher paying job. From there assuming you got a decent job most of us will have a 401k option. You get a tax deduction, tax free growth and most importantly most of us get matching employer contributions of some form. If you put in enough to get the full match over the course of you're career you're going to end up ahead. If you have an HSA sames goes there. If you have a low enough income to qualify for the deduction on an IRA same goes there. Oh yea did I mention 529 for your kids future? Combining investing w/ special accounts that can grow tax free and offer tax deductions are going to maximize you're chances of overall success but again I agree all this is kind of riding on you being in a decent paying field and if you're not already that should be your first priority.
  - DwnVoteHoneyPot 4y ago
    Yes, definitely need to optimize for the employer contributions and tax savings, but that wealth is still from the job. I guess disagree with the "look how much money you'll have from compounded returns!"... the timelines are too long to be practical in our life spans.
LanguageGamer 4y ago
Since I don't see anyone else mentioning this: The geometric mean (6.9) is all that really matters for investors, not the arithmetic mean (8.4) - the arithmetic mean under-weights the importance of negative years to long term performance. For example, if the market is down 20% one year and up 20% the next year, the arithmetic mean will be 0%, but you'll be down 4% (0.8*1.2 = 0.96), which is reflected in the geometric mean of (about) -2%.
- Retric 4y ago
  Depends, dollar cost averaging shifts things around. For a typical 401k style investor having down years mid career improves returns at retirement, but then increases risks in retirement.
  - tunesmith 4y ago
    The average investor also has less money to invest during down years though.
    - scarface74 4y ago
      The “average” investor gets paid cash and not in stock. The public tech company employee has less to invest because a large portion of their income is in stock. The private tech company employee is screwed because statistically, they have equity that won’t amount to shit in a bull market let alone a bear market.
      - loeg 4y ago
        > The “average” investor gets paid cash and not in stock. Not if they're unemployed, which is more likely in down markets.
        majormajor 4y ago
        The "average" investor is in jobs less hit by typical recession/down market impacts, since the odds of a hospitality worker or barista having a retirement account in the first place is much lower than the odds of a white collar employee.
Ekaros 4y ago
Also interesting question from some perspective is putting a unit of currency in a market now and then in 10 years it being worth nearly double logical? Or in 40 years worth nearly 15 times?
EVa5I7bHFq9mnYK 4y ago
When 99% of investors agree on an investment idea, usually that means a bubble that is going to burst.
theandrewbailey 4y ago
I remember people advising to buy things with loans and invest your cash because your returns are more than your interest rate. If you don't need that money for 10+ years, that might make sense, but when things go south, your money (and probably your income) will be gone, but you'll still have payments. (That's assuming the money is actually invested, and not frivolously spent.) Advice like that is why Wells Fargo, Bank of America, and JPMorgan are rubbing their hands in their shiny towers. F*** them.
maxclark 4y ago
Past results don't guarantee future performance ;)
bernardv 4y ago
Buffet’s simple advice for anyone wanting to invest but not sure how to start - Have at least some exposure the S&P500 for the long run. Pretty sound advice.
paulpauper 4y ago
Stock market up a lot today, almost 3%. It's days like today that make it worthwhile. You cannot have upside without also having some down days or even, occasionally, down years. It's interesting how the DJIA has done so much better then the S&P 500. I think this shows the value of periodically removing weak components from the index and choosing only the largest of already large companies instead of 500 large companies. the DJIA also held up well in the 2000-2002 bear market.
- getToTheChopin 4y ago
  Yep. "Avoiding the market’s downs may mean missing out on the ups as well. 78% of the stock market’s best days occur during a bear market or during the first two months of a bull market. If you missed the market’s 10 best days over the past 30 years, your returns would have been cut in half. And missing the best 30 days would have reduced your returns by an astonishing 83%." https://www.hartfordfunds.com/practice-management/client-conversations/managing-volatility/timing-the-market-is-impossible.html#:~:text=78%25%20of%20the%20stock%20market's,returns%20by%20an%20astonishing%2083%25 https://www.hartfordfunds.com/practice-management/client-con....
leoplct 4y ago
6.9% as geometric doesn’t look so attractive. I wonder if a basket of bonds could perform better with less drawdown. If you replicate the same analysis using European or emerging data the results are even worse.
- waylandsmithers 4y ago
  Maybe it would have muddied the site's data but it gets a bit better when you factor in dividends and dividend reinvestment
theuri 4y ago
Well - last time the pattern looked like this (the years around ~1917) it eventually led to WWII. So will we see a WWIII in the next 5-20 years?
oli5679 4y ago
One thing that's not intuitive is the drag of management fees in the long run. If I have 5% average stock market returns over 60 years and pay 0.5% fees, then $100k invested grows by $13M. If I pay 1.5% fees, it nearly halves. This is why I'm a fan of Vanguard and other low-fee index funds. (1.045 ^ 60) - 1 --> 13.0 (1.035 ^ 60) - 1 --> 6.8
- notSupplied 4y ago
  People forget fees compound. 1% extra fees will make you a lot more than 1% poorer in the long run.
lizardactivist 4y ago
Start investing and pumping money into the market, guys! This time it's safe, market will never go down again and noone will lose money! Promise! /s It's funny how they talk of money and market value being erased as if the money is definitely subtracted from balance without being added somewhere else, literally deleted from existance. When the market crashes for you and others, there's always someone in the high echelons of the game who ends up getting richer.
KETpXDDzR 4y ago
Can we see the same analysis for the Japanese stock market? The JP225 index is still lower than it was 1989. Yes, the US is in a different situation. But any predictions towards the future of the US stock market is gambling IMHO. There are simply way too many variables and unknowns to determine future stock prices. [0] https://tradingeconomics.com/japan/stock-market https://tradingeconomics.com/japan/stock-market

Negative annualized return for the 10 year period from 2000 to 2009 is actually quite frightening. "As always, Warren Buffet put it best: “the stock market is a device for transferring money from the impatient to the patient”."

SketchySeaBeast 4y ago
One might paraphrase that as "those who can afford to wait".
paulpauper 4y ago
It helps too that he lived so long an has no use for the money he has invested
- radiator 4y ago
  Why? He has children, does he not?
  - paulpauper 4y ago
    he has billions but never spent more than a middle class lifestyle. Saving money matters a lot when we're talking compounding over decades.
    - atombender 4y ago
      Middle class? He owns a private jet and wears custom-designed suits. He appears to live moral frugally than most billionaires, but he hardly has a middle class lifestyle.
  - therealcamino 4y ago
    He famously has said he will donate most of his money rather than leave it to his children. https://givingpledge.org/pledger?pledgerId=177 https://givingpledge.org/pledger?pledgerId=177 He's not leaving them zero or anything, and three of the foundations he's funding are run by his three children, so they benefit from his wealth. But they won't receive most of it.
layer8 4y ago
That’s only for the money you put in the stock market in 2000 though. Usually you continually put new money into stocks, which somewhat flattens out the risk. Nevertheless, you arguably shouldn’t invest unless you’re prepared to hold for 10-15 years.

getToTheChopin 4y ago

This is an analysis of U.S. stock market returns over the past 150 years. A few insights: The average return of the U.S. stock market has been 8.4% per year over the past 151 years (1871 to 2022); this is the "real total return" reflecting dividends and inflation While the U.S. stock market has trended upwards over time, the market has declined in 31% of all years on record (47 years out of 151 years in total); for example: in 2022, the U.S. stock market dropped by 23.3% The range of returns across 1-year periods has varied significantly (from negative 37.0% to +53.2%). However, the annualized returns across 20-year periods have a much tighter range (from +0.5% to +13.2%) In other words, the stock market has never declined over any 20-year time period! Sources: Professor Robert Shiller and Yahoo Finance; note: the “U.S. stock market” refers to the S&P Composite index from 1871 to 1957, and the S&P 500 index from 1957 until today

retube 4y ago
> The range of returns across 1-year periods has varied significantly (from negative 37.0% to +53.2%). However, the annualized returns across 20-year periods have a much tighter range (from +0.5% to +13.2%) You'd expect something like this. For a normally distributed iid, the annualised volatility of returns over n years scales as sigma / root(n). So if your one year vol was 10%, the annualised vol over a 20 year period would be 10%/sqrt(20) = 2.23%.
- xapata 4y ago
  Are they normally distributed?
  - pclmulqdq 4y ago
    Almost, but the distribution has slightly fat tails.
    - ttymck 4y ago
      Is it correct to say that makes it (slightly) more like a uniform distribution, if viewed as a spectrum between one-point distribution and uniform?

cs702 4y ago

Make sure also to read Warren Buffett's take, written way back in 1999: https://fortune.com/1999/11/22/warren-buffett-on-stock-market/ https://fortune.com/1999/11/22/warren-buffett-on-stock-marke... [a] For me, the most shocking passage of his piece is this one: > ...from the end of 1964 through 1981. Here’s what took place in that interval: DOW JONES INDUSTRIAL AVERAGE Dec. 31, 1964: 874.12 Dec. 31, 1981: 875.00 Now I’m known as a long-term investor and a patient guy, but that is not my idea of a big move. And here’s a major and very opposite fact: During that same 17 years, the GDP of the U.S.–that is, the business being done in this country–almost quintupled, rising by 370%. Or, if we look at another measure, the sales of the FORTUNE 500 (a changing mix of companies, of course) more than sextupled. And yet the Dow went exactly nowhere. -- [a] https://archive.ph/ZbKZK https://archive.ph/ZbKZK

getToTheChopin 4y ago
Great call-out. Here's a non-paywall version to that article: https://www.berkshirehathaway.com/1999ar/FortuneMagazine.pdf https://www.berkshirehathaway.com/1999ar/FortuneMagazine.pdf Interesting to note that if you'd bought and held the S&P500 index for the 20-year period of 1998 to 2018, you would have invested through the dotcom bubble and the great recession -- but still ended with an average real total return of 3.3% per year over that timeframe (adjusted for dividends and inflation)! Edit: typo
- roflyear 4y ago
  I never thought this was being too honest, as no one just buys the SPY once and forgets about it. Most people invest at some interval (through their 401k, IRA, or whatever) and it is much better to run some kind of test that mimics this to some degree. If you bought the SPY once a year, once a month, once a XXX from 1998 to 2018, what are your returns looking like?
  - DMell 4y ago
    These backtests used to be fun when I had access to a Bloomberg terminal. But, yes.. this discussion shows the importance of dollar cost averaging.

danhak 4y ago

Of course a country’s stock market will perform well as that country ascends to become the world’s dominant superpower. The question is whether the power and influence of the U.S. will grow similarly over the next 150 years as it has over the last 150. To invest mechanically without thinking about what’s actually happening in the world is cargo cult behavior.

dionidium 4y ago
Rumors of our impending collapse have been, let's say, exaggerated. I wouldn't bet against the United States over the next 30-50 years, at least.
gumby 4y ago
Who cares about returns over the next 150 years? Even half that is excessive. Someone investing at age 18 might care about the subsequent 50 years. It's going to be a long time before some other country takes over the "reserve currency/investment market of last resort" position the US currently has. No other market is even close to providing the deep liquidity and rule of law the US market has over a wide variety of instruments. Sure, someone will eventually take over that role, but there are no candidates today. And, to your point: it was clear by the late 19th century that the US dollar would displace Sterling, but it took another half a century for that to happen. On the scale of current human lifespan, you can assume it won't happen at all.
- ganonm 4y ago
  Keep in mind that the present value depends somewhat on the discounted future earnings, which by definition extends to the end of time. That being said, the associated time discounting heavily reduces the impact of earnings envisaged say 100 years from now (a 5% discount rate would mean ~13k USD in 100 years is worth about 100 USD now, and that's probably generous given historic market returns). So, the US doing extremely well 100 years from now vs. the US doing very badly 100 years from now could have a non-trivial impact on the perceived value of US assets. I suspect that the large uncertainty about what the world will look like in 100 years means there is just some sort of seldom changing value baked into assets to account for this, but it nonetheless exists, and could change if there was some huge geopolitical shift. And before you mention anyone on earth would be dead in 150 years, yes that's true, however you can always sell it to someone later on who will be alive in 150 years (or sell it to someone who can later sell it to someone etc. etc.).

INeedMoreRam 4y ago

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fedeb95 4y ago

This is bullshit: past returns aren't indicative of future returns. You can't predict the next catastrophe. "Zooming out" is the perfect way to loose money, even better than CAPM or similar stupid things. Edit: Since I'm being downvoted, go read: "The misbehaviour of markets" by Mandelbrot or "The black swan" by Taleb, or just reflect on what "zooming " really is: averaging to keep out outliers. Edit 2: to put it in less salty terms: yes, now it's down 23% from the previous year, so probably it will go up and you will make a profit, as long as US economy doesn't collapse. But you don't know the probability of such an event, since the distribution of returns in markets is unknown (we're not yet at the limit at which the central limit theorem holds). Not knowing that probability, you may die before you see your return. Or, as said, US economy may collapse, your bank or broker will, etc. Meaningless risks? Perhaps in a world of gaussian distributions, not our.

hartator 4y ago
I think you have to see it more from "best alternative" mindset. This shows that long term (20 years and plus) assets are best held in low cost stock index funds. Over cash (inflation), bonds, savings accounts, or other assets. It's the least bad option. And you are not suggesting something else. Hence I guess the downvotes. Of course, markets can be irrational forever or tomorrow we could have a nuclear world war or aliens annex us or a meteor can hit us. This is life 101 though. This is not a deep insight.
- fedeb95 4y ago
  Not suggesting something else isn't an argument. Long term from now you don't know anything, you know long term up to now. The risk of a market crash isn't the same as of a meteor hitting earth, since tails of the probability distribution (as can be estimated, so not cast in stone) are fat.
verdverm 4y ago
If the US economy collapses (to black swan catastrophe levels), you are going to have a much different set of problems and markets will stop running all together, the world will collapse. We do know that the probability of a collapse is so small that it is not worth worrying about for investment strategy. Better to worry about the things that might lead to such collapses and strategies to mitigate those

boatsie 4y ago

The argument that the US stock market always goes up over relatively long periods of time seems somewhat flawed to me. If it were true that it was always best to invest in US stocks, everyone’s (longish term) money would flow to that asset class, thus undervaluing something else in return. So it just seems that it can’t be a dominant strategy or else everyone would be doing it. Wouldn’t that leave assets like bonds, real estate, foreign stocks, etc undervalued?

1270018080 4y ago
Everything else goes up over relatively long periods of time too.
danielmarkbruce 4y ago
It isn't a zero sum game. The underlying businesses have generated returns on the capital deployed. It can continue to go up forever.
- HDThoreaun 4y ago
  There is a limited amount of energy we can harness on this planet. Seems extremely difficult to believe it can continue to grow exponentially forever.
  - theandrewbailey 4y ago
    You're moving the goalposts. Capital is not energy.
paulpauper 4y ago
Stocks also have much more risk compared to bonds , so more risk compensated by higher returns .
sokoloff 4y ago
I think you’re conflating “consistently beats inflation” with “always best investment”. That US stock market real total returns are positive doesn’t say anything about whether all long-term money will flow into it.

rr888 4y ago

Credit Suisse does this every year in the Credit Suisse Global Investment Returns Yearbook. https://www.credit-suisse.com/about-us/en/reports-research/csri.html https://www.credit-suisse.com/about-us/en/reports-research/c... https://www.credit-suisse.com/media/assets/corporate/docs/about-us/research/publications/credit-suisse-global-investment-returns-yearbook-2022-summary-edition.pdf https://www.credit-suisse.com/media/assets/corporate/docs/ab...

julienchastang 4y ago

How can we have infinite, exponential economic growth on a finite planet?

mikeg8 4y ago
Growth isn’t solely tied to use of finite resources. Services also count. Two people can exchange a service, say a massage, which extracts zero finite resources, and at the same time, creates economic output. edited typo
- disqard 4y ago
  I've wondered about that, but it doesn't seem to add up. Maybe you can help me find the flaw in my reasoning (below): There's (at minimum) Time being exchanged. If A gives B a massage, A and B are investing that Time in this transaction (also, A is investing a space, a massage table, electricity for the physical space, etc.). All of these things are finite, and devoted to this service. If the service were not provided, these finite resources would not need to be locked up / extracted / used. To say that the providing of this service happened in a vacuum of "extracts zero finite resources" seems a bit disingenuous.
  - mikeg8 4y ago
    Thanks for engaging, it's beneficial for me to also think through this reasoning. I'm sure there are flaws in my understanding/example as well, but here is how I would respond: I think we are possibly using "finite" too loosely. A googled definition of "finite resource" is, "A resource that is concentrated or formed at a rate very much slower than its rate of consumption and so, for all practical purposes, is non-renewable." I do not believe space would be considered finite as it cannot really be "consumed." occupying a space does not deplete the resource of the space itself. Space on earth is more finite than "space", but still, there are many types of spaces for a massage to take pace: masseuses residence, the client's home, a park or yard, etc. In the economic sense, space doesn't seem finite while it may be in the Physics sense. A massage table doesn't seem finite either. If its made from wood, leather/cotton, those would be regeneratable resources and tables made with metal or plastics probably does not meet the definition of finite as a table is reusable and has a very very low rate of consumption (replaceability in this sense). Finally the most controversial: electricity! hard to argue against this without some squirming but 1) if the massage is rendered in a space with good natural lighting or outdoors, electricity is not mandatory 2) humans may find a way to make this resource much less "finite" in the future. Using the massage example was not a full-proof attempt on my part, but I can imagine others examples (vocal lessons, tutoring, coaching, selling flowers/eggs from a farm stand etc) that can be done without the "finite" resources we are discussing. My main point was that not all economic output is tied to the depletion of a finite resource.

compumike 4y ago

I think a useful analogy for engineers is that companies are machines, a black box that takes some amount of resource as inputs, and turn it into some outputs. If we collapse the vector of those inputs (such as labor, materials, capital) and outputs (products, services) to a single unit such as "dollars" by which we measure those things, then any sustainable (i.e. profitable) business creates more output than input. Personally, I like owning companies, because I like owning black boxes that take money in and produce more money out. :) I do think the long-termist view, which this page promotes, raises several questions: Do you believe that companies will, on average, continue being profitable in the long term? Or do you believe that in the long term, profit margins drop to zero? If capital is abundant, can companies remain profitable without there being a positive return on capital? (I.e. do those profits flow to entities other than shareholders?) Does a "steady state economy" exist? https://en.wikipedia.org/wiki/Steady-state_economy https://en.wikipedia.org/wiki/Steady-state_economy And if so, are steady-state corporate profits zero? Is there a "tendency of the rate of profit to fall" https://en.wikipedia.org/wiki/Tendency_of_the_rate_of_profit_to_fall https://en.wikipedia.org/wiki/Tendency_of_the_rate_of_profit... or is this in some degree compartmentalized with the turnover of industry over time? I do appreciate the graphs on this page, especially the rolling 5/10/20 year ones. When I get some free time, I may adapt that concept for my side project https://totalrealreturns.com/ https://totalrealreturns.com/ which lets you graph the inflation-adjusted, dividend-reinvested returns of any publicly traded stock, ETF, or mutual fund.

getToTheChopin 4y ago
You're raising very valid questions. It seems to me that we'd need to have continued breakthroughs in science, technology, medicine, etc. in order to drive sustainable increases in economic growth. Forecasters have predicted the end of innovation at many points, but humans do seem to have a knack of finding something new and valuable.
kridsdale1 4y ago
I don’t think we need to worry about steady state economics as long as we are on Earth. Ultimately the whole economy is a proxy for measuring the flows of transformations of useless material and energy in to useful ones. The sun shines every day. That makes crops, which drive labor. Labor writes software, profits go up. The true input is the hydrogen cloud around the sun.

captainmuon 4y ago

It's my understanding that the return on investment has been slowly and constantly going down since at least the 70s, such that it is getting harder and harder to find good investments. That is made more problematic by low interest rates (can't just "bring it to the bank") and high inflation (can't "put it into a sock"). This is the cause of a lot of ailments. Money rushing into real estate, investors requiring a certain ROI, thus neccessarily raising housing prices. Something similar happens in the health sector. How do I square that with this plot that seems to imply constant (although not stable) high returns for over a century? Are the stocks picked not representative (probably not) or not weighted properly? What does "adjusted for reinvested dividends" mean? (I could imagine in times of high inflation and low ROI, companies would want to get rid of cash and pay dividends, rather than investing it themselves for example.)

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getToTheChopin 4y ago
This data is based on the returns of the S&P 500 index, which is made up of the 500 largest publicly traded companies in the US: https://en.wikipedia.org/wiki/S%26P_500 https://en.wikipedia.org/wiki/S%26P_500 Adjusting for reinvested dividends refers to an assumption that the cash dividends paid out by a company are re-invested to buy more shares of the stock. The concept being that a company can pay out a cash dividend or use that money to invest / grow their business. Therefore, to calculate a "total return" we need to factor in the price increases of a stock + the dividends that were paid by the company.
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cheriot 4y ago
> the return on investment has been slowly and constantly going down since at least the 70s Curious if you have a source for that? > What does "adjusted for reinvested dividends" mean? Dividends are payed out in cash and this means the analysis assumes they're used to buy more shares. There's an argument that the American economy in the 20th century is itself a selection bias. It's the most successful economic period in history. Other countries in the same period or the world economy in other periods do not have such spectacular returns.

keewee7 4y ago

As long as I have been browsing the English-language Internet the overall mood among Americans has been that the S&P500 and US dollar hegemony will collapse in a month. Why is that? I'm European but the US doesn't seem too different from most of Europe in terms of stability and the risk of unrest.

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EVa5I7bHFq9mnYK 4y ago
On the internet, you never know who are those "Americans". Keywords such as "US dollar hegemony", "petrodollars" and "Yellowstone volcano explosion" are strong indicators of a certain country's troll operation.

lvl102 4y ago

Would be wise to look at stock market side by side with bond market.

morninglight 4y ago

A Fourier transform on the data is left to the reader. It reveals soooo much more.

getToTheChopin 4y ago
Any quick insights to share?
fallingfrog 4y ago
Don't keep us hanging!

mnky9800n 4y ago

This justifies historical investment strategies like the very simple buy and hold forever (only blue chips and salsa please) or something marginally more sophisticated like dogs of the dow. The real question is whether growth will continue, or at least during our life times, be kept afloat by unfair practices by the wealthy.

concordDance 4y ago

This is actually horrifying if you think about it for a minute. Given GDP is growing at a slower rate than this, this means that the rich will genuinely just get richer and get a larger slice of the pie while the poor get squeezed. Land/house prices will increase to the maximum the market can bear and as that market will be full of money from those inheriting from their parent's patient investment... we'll end up in a society where your quality of life depends on the wealth of your ancestors.

JumpCrisscross 4y ago
> GDP is growing at a slower rate than this Over what interval are you observing this?
- fallingfrog 4y ago
  https://www.statista.com/statistics/996758/rea-gdp-growth-united-states-1930-2019/ https://www.statista.com/statistics/996758/rea-gdp-growth-un...
nazgulnarsil 4y ago
enerational wealth diffuses in 3 generations iirc
fallingfrog 4y ago
That's the basic premise behind Piketty's book "Capitalism in the 21st Century". From wikipedia: "The book's central thesis is that when the rate of return on capital (r) is greater than the rate of economic growth (g) over the long term, the result is concentration of wealth, and this unequal distribution of wealth causes social and economic instability. Piketty proposes a global system of progressive wealth taxes to help reduce inequality and avoid the vast majority of wealth coming under the control of a tiny minority."

StillBored 4y ago

So at ~7% it takes 10 years to double your money. So that gives one about 4 doublings in ones working career. So, a bad ten year stretch like 98-08 which provided basically 0% over the decade makes a huge difference in ones ability to retire based solely on 401K/etc style returns and should be a strong argument in favor of defined benefit plans that basically pool the risk over a much longer horizon vs going it alone. I would have expected someone to create a retirement insurance pool type thing that returns something close to the long term average s&p returns. But if you go looking for such a thing, the returns are closer to 1/2 the s&p. Its really the kind of thing the government should backstop but... "socialism" even if the math works out. Which really pisses me off because its apparently ok to "socalize" the poor mgmt at $BIGCORP that gets a handout once a decade or so at the current rate after spending billions on stock by backs but not socialize individual retirement risk in a meaningful way.

getToTheChopin 4y ago
> I would have expected someone to create a retirement insurance pool type thing that returns something close to the long term average s&p returns This sounds like you're describing a defined benefit pension plan, or an government old age pension plan like Social Security (in the US) / Canada Pension Plan (in, well, Canada). As usual, higher risk begets higher reward. If you don't want to face the prospects of volatile returns, you'll likely need to accept a lower long-term average return in exchange for the predictability.
- StillBored 4y ago
  Traditional US pension plans are all but dead except for a small number of people basically grandfathered into systems. Social security doesn't have a way to "buy up" and invest more to get it to say match ones yearly income. So really every individual investor is on their own until they get to the point where they can sell the risk and buy an annuity (although those tend to be terrible too largely I guess because they want to make $$$$ and other reasons). So, in the US outside of Social security, which isn't a retirement plan, there isn't any option other than to hope you don't have to retire during a downturn, or that you have to go live in a box for a few years to avoid burning all your capital when its value temporary falls for a couple years. Because there isn't any way to recover except to go work at walmart as a door greeter. There have been a number of articles about this over the past decade or two, which boil down to, in the US you can do everything "right" but whether you can actually retire comes down to a bunch of lucky decisions and market timing. So basically its random, with some probably of "success" of landing into a bucket that actually allows you to retire even at 65 which is well into the "everyone is dying off" part of the morality curve. Work till you die is the official plan, but then people might start reconsidering their life choices when there isn't this "you will retire happy" carrot at the end.

jgeada 4y ago

Note that there are 20 year periods where the net gain is close to 0. People starting their economically productive life during one of those intervals will not see any economic gains from investing in the stock market, and to the extent that the market echoes the economy their economic situation will likewise be stagnant. And worse, there will be all the people from the lucky intervals extorting these unluckly people to pick themselves up by their bootstraps. People born in the lucky periods almost always describe their results as due to hard work, never as due to luck. And unlucky timing is almost always attributed to personal failures, not the economic situation.

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throwthere 4y ago
Bogus. You’re assuming they invested all their dollars at the year 0 (peak) price an and sold everything at the 20 year trough. Of course that’s impossible, they invested over their entire careers which included intervals of much lower prices. So much should be obvious by just looking at the sp500 graph of performance over time. There’s no period where dollar cost averaging over twenty years gave a result like you’re saying.

DwnVoteHoneyPot 4y ago

All that long-term data and presentation is lovely and all, but I disagree with the conclusion of "buying and holding has been a simple and straightforward way to build wealth". Saying investing $1,000 in 1871 would be $22M now doesn't help me. Saying $1,000 in 1969 is now $23K doesn't help me - I wasn't alive then. It's not practical. I didn't have $1,000 of savings until my late 20s. After paying for bachelors and masters, I had to borrow $500 from friend to eat and live until next pay check. Then car, house, furniture. And if that $1,000 I invested in late 20s turns into $2,260 in 20 years - whoop-dee-doo, who cares. Conclusion should be "buying and holding has been a simple and straightforward way to store wealth". But not going to build wealth unless I'm active - building resume, building business. In addition, I might as well take that $1,000 and swing for the fences and turn it into $10,000 or more looking for the next AAPL, GOOG etc. like venture capital.

anon23anon 4y ago
I obviously can see your logic but I still think it's your best bet. I also think it's important to point out there's an order of importance. If you have low or no income you're first priority needs to be getting a higher paying job and or up skilling to enable you to get a higher paying job. From there assuming you got a decent job most of us will have a 401k option. You get a tax deduction, tax free growth and most importantly most of us get matching employer contributions of some form. If you put in enough to get the full match over the course of you're career you're going to end up ahead. If you have an HSA sames goes there. If you have a low enough income to qualify for the deduction on an IRA same goes there. Oh yea did I mention 529 for your kids future? Combining investing w/ special accounts that can grow tax free and offer tax deductions are going to maximize you're chances of overall success but again I agree all this is kind of riding on you being in a decent paying field and if you're not already that should be your first priority.
- DwnVoteHoneyPot 4y ago
  Yes, definitely need to optimize for the employer contributions and tax savings, but that wealth is still from the job. I guess disagree with the "look how much money you'll have from compounded returns!"... the timelines are too long to be practical in our life spans.

LanguageGamer 4y ago

Since I don't see anyone else mentioning this: The geometric mean (6.9) is all that really matters for investors, not the arithmetic mean (8.4) - the arithmetic mean under-weights the importance of negative years to long term performance. For example, if the market is down 20% one year and up 20% the next year, the arithmetic mean will be 0%, but you'll be down 4% (0.8*1.2 = 0.96), which is reflected in the geometric mean of (about) -2%.

Retric 4y ago
Depends, dollar cost averaging shifts things around. For a typical 401k style investor having down years mid career improves returns at retirement, but then increases risks in retirement.
- tunesmith 4y ago
  The average investor also has less money to invest during down years though.
  - scarface74 4y ago
    The “average” investor gets paid cash and not in stock. The public tech company employee has less to invest because a large portion of their income is in stock. The private tech company employee is screwed because statistically, they have equity that won’t amount to shit in a bull market let alone a bear market.
    - loeg 4y ago
      > The “average” investor gets paid cash and not in stock. Not if they're unemployed, which is more likely in down markets.
      - majormajor 4y ago
        The "average" investor is in jobs less hit by typical recession/down market impacts, since the odds of a hospitality worker or barista having a retirement account in the first place is much lower than the odds of a white collar employee.

Ekaros 4y ago

Also interesting question from some perspective is putting a unit of currency in a market now and then in 10 years it being worth nearly double logical? Or in 40 years worth nearly 15 times?

EVa5I7bHFq9mnYK 4y ago

When 99% of investors agree on an investment idea, usually that means a bubble that is going to burst.

theandrewbailey 4y ago

I remember people advising to buy things with loans and invest your cash because your returns are more than your interest rate. If you don't need that money for 10+ years, that might make sense, but when things go south, your money (and probably your income) will be gone, but you'll still have payments. (That's assuming the money is actually invested, and not frivolously spent.) Advice like that is why Wells Fargo, Bank of America, and JPMorgan are rubbing their hands in their shiny towers. F*** them.

maxclark 4y ago

Past results don't guarantee future performance ;)

bernardv 4y ago

Buffet’s simple advice for anyone wanting to invest but not sure how to start - Have at least some exposure the S&P500 for the long run. Pretty sound advice.

paulpauper 4y ago

Stock market up a lot today, almost 3%. It's days like today that make it worthwhile. You cannot have upside without also having some down days or even, occasionally, down years. It's interesting how the DJIA has done so much better then the S&P 500. I think this shows the value of periodically removing weak components from the index and choosing only the largest of already large companies instead of 500 large companies. the DJIA also held up well in the 2000-2002 bear market.

getToTheChopin 4y ago
Yep. "Avoiding the market’s downs may mean missing out on the ups as well. 78% of the stock market’s best days occur during a bear market or during the first two months of a bull market. If you missed the market’s 10 best days over the past 30 years, your returns would have been cut in half. And missing the best 30 days would have reduced your returns by an astonishing 83%." https://www.hartfordfunds.com/practice-management/client-conversations/managing-volatility/timing-the-market-is-impossible.html#:~:text=78%25%20of%20the%20stock%20market's,returns%20by%20an%20astonishing%2083%25 https://www.hartfordfunds.com/practice-management/client-con....

leoplct 4y ago

6.9% as geometric doesn’t look so attractive. I wonder if a basket of bonds could perform better with less drawdown. If you replicate the same analysis using European or emerging data the results are even worse.

waylandsmithers 4y ago
Maybe it would have muddied the site's data but it gets a bit better when you factor in dividends and dividend reinvestment

theuri 4y ago

Well - last time the pattern looked like this (the years around ~1917) it eventually led to WWII. So will we see a WWIII in the next 5-20 years?

oli5679 4y ago

One thing that's not intuitive is the drag of management fees in the long run. If I have 5% average stock market returns over 60 years and pay 0.5% fees, then $100k invested grows by $13M. If I pay 1.5% fees, it nearly halves. This is why I'm a fan of Vanguard and other low-fee index funds. (1.045 ^ 60) - 1 --> 13.0 (1.035 ^ 60) - 1 --> 6.8

notSupplied 4y ago
People forget fees compound. 1% extra fees will make you a lot more than 1% poorer in the long run.

lizardactivist 4y ago

Start investing and pumping money into the market, guys! This time it's safe, market will never go down again and noone will lose money! Promise! /s It's funny how they talk of money and market value being erased as if the money is definitely subtracted from balance without being added somewhere else, literally deleted from existance. When the market crashes for you and others, there's always someone in the high echelons of the game who ends up getting richer.

KETpXDDzR 4y ago

Can we see the same analysis for the Japanese stock market? The JP225 index is still lower than it was 1989. Yes, the US is in a different situation. But any predictions towards the future of the US stock market is gambling IMHO. There are simply way too many variables and unknowns to determine future stock prices. [0] https://tradingeconomics.com/japan/stock-market https://tradingeconomics.com/japan/stock-market